Iceland’s Initial Central Bank Rate Cut – Currency Thoughts

Iceland’s Initial Central Bank Rate Cut

October 2, 2024

The Central Bank of Iceland became the latest monetary authority to initiate a cycle of interest rate cuts from an extended highly restrictive level. The key 7-day term deposit had been held at 9.25% since a 50-basis point hike in August 2023 culminated increases totaling 125 bps in 2021, 400 bps in 2022 and 325 bps in 2023. Meanwhile, consumer price inflation in Iceland has receded from 10.2% in February 2023 to 6.0% this past August and a 33-month low of 5.4% in September. That’s still above the 2.5% medium-term target of central bank officials but low enough relative to interest rates to elicit today’s announcement of a 25-basis point term deposit rate cut to 9.0%. In taking this step, a released statement stresses that officials will continue to act with caution due to “persistent inflation, inflation expectations above target, and strong domestic demand.”

Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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