Iceland Keeps Interest Rates Above 6 Percent in Bid to Maintain Growth

Iceland’s central bank, the Sedlabanki, kept its main lending rate at 6% yesterday and maintained the currency market interventions it has been undertaking to support the Krona.The rate is the highest among Western European nations.

Iceland has seen economic growth outpacing that of their Euro-counterparts, despite some saying the bank has raised rates too quickly, hurting GDP expansion. Since 2011, when completing an IMF program installed after the country’s financial collapse, gross domestic product has seen positive growth in all but one quarter.

“The central bank raised interest rates too hastily last year and the economy slowed down last winter,” said Asgeir Jonsson, an economist with Reykjavik-based asset manager Gamma. “The central bank has decided to wait with further rate hikes and I don’t see them raising rates before the new year.”

Thus far the central bank’s policies have achieved desired results as the currency has remained firm and inflation has been coming down. For 2013 the bank forecasts GDP growth of 1.9% and 2.8% for 2014.

The krona has gained 8.7 percent against the euro from a low in January, helping ease inflation to 3.8 percent in July, from more than 6 percent last year. The bank has raised rates six times since August 2011 to prevent krona losses.

Iceland Keeps Interest Rates Above 6 Percent in Bid to Maintain Growth

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