Iceland Cuts Key Interest Rate For Fourth Straight Time
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Loading... - Liisa Turunen
- 20 Mar 2025
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The Central Bank of Iceland has announced a reduction in its benchmark interest rate for the fourth consecutive meeting, reflecting ongoing adjustments in response to economic conditions. On Wednesday, the Monetary Policy Committee, led by Governor Asgeir Jonsson, unanimously decided to lower the seven-day term deposit rate by 25 basis points to 7.75 percent.
While the central bank noted that inflation has eased and inflation expectations have decreased recently, it emphasized the need for caution moving forward. "Although inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward," the bank stated. This caution is further compounded by significant global economic uncertainty, which continues to influence monetary policy decisions.
The decision to cut the interest rate follows previous reductions of 50 basis points in both February and November, as well as a 25 basis point cut in October. These adjustments reflect the bank's strategy to manage inflation while supporting economic growth.
As of February, inflation in Iceland softened to a four-year low of 4.2 percent. Policymakers anticipate continued disinflation in the coming months, which may influence future monetary policy decisions. Despite the easing of inflation, demand growth has subsided, and activity in the housing market has slowed. However, households have increased their consumption spending, and wage costs continue to rise steeply.
The central bank indicated that near-term monetary policy will be shaped by developments in economic activity, inflation, and inflation expectations. This approach underscores the bank's commitment to navigating the complexities of the current economic environment while maintaining stability.
Iceland's decision to cut its key interest rate for the fourth time reflects a careful balancing act between managing inflation and supporting economic growth amid global uncertainties. As the central bank continues to monitor economic indicators, its cautious stance will be crucial in determining future monetary policy directions.
