Iceland: Central Bank Raises Key Interest Rate to 2%

The central bank of Iceland decided to raise the bank's key interest rates by 0.5% to 2%.

This is the fourth rate hike by the bank since May, indicating a change in trend as the economic outlook improves.

The key interest rate reached a historic low of 0.75% in November 2020, compared to 3% in January 2020, and 4.5% in January 2019.

GDP growth is expected to measure around 4% in 2021. A better outlook for exports leads to an improved outlook compared to last August's forecast, According to the bank's forecast.

Next year's GDP growth is expected to hit just over 5%, however, the central bank stated that 'great uncertainty still remains and economic developments will depend on the path taken by the pandemic'.

In October, inflation rose to 4.5% and is expected to continue rising in the coming months. "The factors behind this rise are global price increases, a faster recovery in domestic economic activity, and higher wage costs," the bank concluded.