"Nothing is obtained by waiting"

Governor of the Central Bank, Ásgeir Jónsson, says that any help from the government in reducing expansion is welcome, but that the Central Bank will not wait for anyone. Therefore, a major step was decided today when the bank’s policy rate was increased by one percentage point, which currently stands at 7.5%.

“What the Central Bank is focusing on now is the task assigned to it so that we can’t wait for anyone else to do anything. We have to take the necessary action,” Ásgeir said at a monetary policy committee briefing this morning.

Any help from public finances will be welcome

Jónsson said that inflation now is on a fairly broad basis, not that apartment increases are driving it, as was the biggest reason for much of last year. He says that it is playing into imported inflation due to the high cost increases abroad, but also the huge demand in this country. “So we need to act,” Jónsson said.

He next addressed the question of government and government spending. “Any help we receive from the federal budget is welcome, but we are not waiting for it.”

This was echoed by Jónsson’s, Vice President of the Central Bank for Monetary Policy, Rannveig Sigurðardóttir, when she said she would speak from her own opinion. “We don’t usually have a specific opinion about what the government does or doesn’t do, but if I speak for myself, I think it would have helped and would help if some action were taken on the income side that worked quickly and reduced demand.”

Diminish increased borrowing and business investments

Both spoke of how the interest rate increase would have to have the effect of reducing business investment. As a result, Jónsson pointed out that there had been a large increase in lending to businesses in the last few months and last year, the increase had reached 400 billion ISK. He said that the Monetary Policy Committee was to some extent trying to respond to that situation.

Sigurðardóttir said the investments of the industries have been much stronger than had been anticipated. The rate decision must be seen in relation to these loans as well, not just at mortgage lending to individuals. The increases are aimed at addressing more factors such as this with the companies.

Need to take immediate action

Jónsson also said that although inflation was persistent, there was some evidence that the conduct of monetary policy was good and that the increases had been moderated well. “You can’t say that the brokerage system is blocked,” he said. However, much has been decided against the bank’s actions. It has taken the form of strong economic growth, wage increases and a huge increase in demand.

“For the most part, let’s see that all aspects of monetary policy work very well. Our policy rate changes have a considerable impact. That is why we believe it is very important to take immediate action and take major steps. Hopefully, this will lead to more progress and we can stabilize the economy sooner. Nothing is obtained by waiting,” Jónsson concludes.