22 March 2023

Statement of the Monetary Policy Committee 22 March 2023

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 1 percentage point. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 7.5%.

Inflationary pressures are still growing, and price increases are becoming ever more widespread. Headline inflation is currently 10.2%, and underlying inflation is 7.2%. Long-term inflation expectations are still well above target, and the Bank’s real rate has declined since the MPC’s last meeting. The outlook is for inflation to be higher in the near future than was forecast in February, even though the housing market has cooled.

GDP growth was strong in 2022, and well above the level the domestic economy can sustain in the long run. Domestic demand grew more than was projected in February, and indicators imply that it was stronger at the beginning of 2023 than previously anticipated. Furthermore, the labour market is very tight.

Under these circumstances, it is important to prevent a wage-price spiral, particularly in view of the strong demand pressures in the economy and the upcoming wage negotiations. The MPC will apply its policy instruments so as to ensure a better balanced economy and bring inflation back to target.

No. 9/2023
22 March 2023

The interest rates will be as follows:

1. Overnight loans 9.25%
2. Seven-day collateralised loans 8.25%
3. Seven-day term deposits 7.50%
4. Current accounts 7.25%

Central Bank of Iceland interest rates and reserve requirements 22 March 2023