Iceland Hikes Rates Third Time This Year to Stem Housing Boom

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Iceland‘s central bank raised borrowing costs for the third time this year, citing a continued housing price rally and concerns of growing inflation expectations, Bloomberg News reported. Policy makers lifted the seven-day term deposit rate by a quarter-point to 1.5%, the highest level since March 2020. In May, Iceland became the first country in western Europe to tighten monetary policy since the pandemic struck. One of the main drivers for inflation is housing prices which have surged close to 15% in the last 12 months, helped by lower borrowing costs. “Although underlying inflation is declining, there is cause for concern in that inflation expectations appear to have begun rising again,” the central bank said. “It is too soon, however, to say whether they are becoming less firmly anchored to the inflation target.” Inflation -- which has been well above the central bank’s target of 2.5% since last spring -- measured 4.4% in September, just below the eight-year high hit in April. Last week, the central bank set limits on debt service-to-income ratios for mortgage borrowers in an effort to curb house price growth and reduce long-term systemic risks. Read more.