Financial and Mortgage Portfolio Overview
Highlights
Policy rate to rise rapidly throughout 2022
Gradual easing further ahead; equilibrium rate in sight by the end of the horizon
Policy rate and inflation
%
The Central Bank of Iceland has
hiked its policy by 4 percentage
points since May 2021, after
reaching an all-time low of 0.75% in
4Q2020
10
The policy rate is now 4.75%, its
8
highest since 2Q2017. The real
policy rate remains negative,
however
6
Further steep rate hikes are
expected in the near future, so as to
rein inflation in, keep inflation
expectations under wraps, and push
the real policy rate above zero
2
We forecast that the policy rate will
continue to rise swiftly, peaking at 5-
6% by end-2022 before declining
gradually from 2H2023 onwards
0
Long term nominal rates are likely to
remain elevated during the policy
-2
rate hike cycle, then decrease
moderately
Long term real rates, currently
-4
around the 1% mark, are expected
to rise gradually in coming quarters
-6
2018
2019
2020
Effective CBI policy rate
8
7
6
5
Interest rates
%
3.2% breakeven
inflation rate
4
3
2
1
0
2021
2022
2023
2024
-Inflation
-Real policy rate
3.6% breakeven
inflation rate
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
CBI key interest rate
Long term yield
-Long term real yield
Sources: Central Bank of Iceland, Kodiak, Statistics Iceland, ÍSB Research.
47
August-September 2022View entire presentation