Iceland has seen the largest rate hike since the 2008 crisis

The central bank of Iceland has raised interest rates more sharply since the global financial crisis of 2008, trying to tame inflation triggered mainly by a spike in property prices.

In particular, according to Bloomberg, the Reykjavik Monetary Policy Committee increased the interest rate on seven-day time deposits by 75 basis points to 2.75%, which is its highest level in almost two years.

The increase was forecast by the country’s two largest banks, Landsbankinn and Islandsbanki, while market participants polled by a central bank last week forecast a 50 basis point increase.

“The outlook for inflation has deteriorated significantly,” central bank officials said in a statement, stressing that “the bank will use all available tools to ensure that inflation falls within the target within an acceptable time frame.”

According to Bloomberg, the Icelandic central bank can claim to be the most aggressive (hawkish) in Western Europe, as it tightened its policy well before its neighbors, since last May, and has continued to do so ever since. from interest rate increases.

However, its efforts have not yet borne fruit, as inflation – which includes the cost of real estate as measured by the country – rose to almost a decade high of 5.7% last month.

Driven by financial support due to the pandemic, house prices have risen by more than 18% in the Reykjavik region over the past year.

At the same time, inflation is expected to move to 5.3% this year, compared to the previous forecast of 3.5% of the central bank.

The bank expects price increases to slow to 3.4% next year and 2.9% in 2024, but remain above the 2.5% target.