Earlier this week, the Monetary Policy Committee announced a 0.25 percentage point cut in the key interest rate. The move is intended to offset the tightening of credit conditions that followed the Supreme Court’s recent ruling in the much-discussed interest case.
On the broader economic picture, inflation stood at 4.3 percent in October — up slightly month-on-month, driven mainly by rising housing and food prices, according to the Central Bank’s latest quarterly report. That figure still sits well above the bank’s targets.
Central Bank Governor Ásgeir Jónsson has pointed to a shortage of supply in the real estate market as the root cause of the persistent inflation seen in recent years. That shortage has been worsened by upheavals on the Reykjanes Peninsula and by the so-called stability agreement failing to deliver what it promised. The latest round of collective bargaining, he noted, also didn’t go as planned — wage increases came in steeper than hoped.
Jónsson is nonetheless cautiously upbeat. “We’re anticipating a slowdown in the economy, which should coincide with a gradual easing in both the labor market and wage growth,” he said. He also pointed to early signs of cooling in the real estate market.
In a conversation with Kristján Kristjánsson on Sprengisandi, a popular program on Bylgjuni, Jónsson went deeper on these themes. The full interview is available in the link below.
Jónsson thinks a real turn in inflation may finally be close. “I think we’re finally witnessing an oversupply in the real estate market. It appears we are on track for a slowdown, and we should soon see inflation trends begin to decrease. Hopefully, this will allow us to gradually relax interest rates,” he said.
