05 October 2022

Statement of the Monetary Policy Committee 5 October 2022

The Monetary Policy Committee

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.25 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 5.75%.

Indicators suggest that recent interest rate hikes have slowed overall demand growth and housing market activity. Headline inflation measured 9.3% in September and has fallen by 0.6 percentage points since the MPC’s August meeting. Underlying inflation rose between meetings, however. There are also signs that inflation expectations have begun to decline again, although they are still above the Bank’s inflation target.

According to preliminary national accounts data, GDP growth measured 6.8% in H1/2022. Demand appears to have been strong in Q3, although the outlook is for a slowdown as the winter advances. Furthermore, recent indicators from the labour market suggest that the output gap in the domestic economy has peaked. Moreover, the global economic outlook has deteriorated and uncertainty has grown, which could cause domestic demand to ease more quickly than previously assumed.

The MPC will continue to ensure that the monetary stance is tight enough to bring inflation back to target within an acceptable time frame. Near-term monetary policy decisions will depend on developments in economic activity, inflation, and inflation expectations. Decisions taken at the corporate level, in the labour market, and in public sector finances will be a major determinant of developments in interest rates in the coming term.

No. 20/2022
5 October 2022

The interest rates will be as follows:

1. Overnight loans 7.50%
2. Seven-day collateralised loans 6.50%
3. Seven-day term deposits 5.75%
4. Current accounts 5.50%

Central Bank of Iceland interest rates and reserve requirements 5 October 2022