ICELAND’S central bank today raised its main interest rate for the fifth time since May to combat rising inflation, though prices have risen less than previously feared, it said.

Central banks across the world have hiked their rates to combat soaring consumer prices, which rose after Covid restrictions were eased and surged even higher as Russia’s invasion of Ukraine sent food and energy prices through the roof.

Iceland’s central bank, Sedlabanki, said it lifted the rate by 0.25 percentage points to 6.0% following hikes in May, June, August and October.

Inflation picked up slightly last month, to 9.4%, but has fallen by 0.5 percentage points from its July peak. It is forecast to average around 9.4% in the fourth quarter, the bank said.

It noted that the Icelandic currency, the krone, had depreciated since its last meeting in October.

In addition, “indicators imply that inflation expectations have become less firmly anchored to the target, and it could therefore take longer than it would otherwise to bring inflation back to target.”

Inflation has however risen less than was feared in August, “reflecting a more rapid shift in the housing market and larger-than-expected declines in petrol prices and airfares this autumn”, it added. 

“The short-term inflation outlook has therefore improved, although prospects further ahead are broadly unchanged”.

The bank said it would “ensure that the monetary stance is tight enough to bring inflation back to target within an acceptable time frame”.

According to the bank’s new macroeconomic forecast, GDP growth is projected to measure 5.6% in 2022 and 2.8% next year, the latter figure up from the August forecast of 1.9%. – AFP, November 23, 2022.