On the right path
The Monetary Policy Committee of the Central Bank of Iceland cut interest rates by 50 basis points this morning. Thus, interest rates have been reduced by 75 basis points in a short period. This is very much in line with what we in Framsókn and others who assess the economic situation in Iceland have been saying. We are truly on the right path.
We have a responsible and reliable economic policy, and inflation has decreased in line with forecasts. Fiscal austerity is sufficient and ensures a soft landing, which essentially means reducing inflation without causing unemployment here.
We have long-term wage agreements which contribute to stability, and thus the labour market parties have played their part.
We are seeing inflation expectations decrease, and they have not been lower since the beginning of the year.
The exchange rate of the Icelandic króna is stable and has been strengthening.
A noticeable difference
To put these interest rate cuts into context, the payment burden of loans decreases significantly. The reductions already implemented can, for example, amount to nearly ISK 200,000 on an annual basis if based on a 30m.kr. housing loan. The same effects are felt by the country's businesses that finance themselves with loans. It makes a noticeable difference.
We all agree that society has had to endure difficult times with high inflation rates than we care for following Covid, inflation that flared up worldwide, and the challenges we have faced following the volcanic eruption in Grindavík. This endeavor has required patience and resilience. We now see the light at the end of the tunnel with this greatest economic interest issue of the society as a whole.
We are in a prime position to continue on this path. There are all signs that interest rates can continue to decrease. But it will not happen by itself. It requires us to keep playing our cards right and ensure responsible, calm, and reliable economic management.
Sigurður Ingi Jóhannsson, Chairman of Framsókn and Minister of Finance and Economic Affairs.
The article was first published on visir.is on 20 November 2024.
