Icelands central banks decision to raise its policy interest rate by 25 basis points to 14.25% was in line with forecasts, but is nevertheless considered unwise as there are indications the economy is beginning to contract, says Kaupthing Bank.
"We believe this increase therefore could lead to a very difficult period of adjustment in the economy because the effects of raising interest rates always materialize considerably later," Kaupthing says.
Kaupthing added this will likely be the last time the central bank raises rates in the current economic cycle, but expects rates to stay high "for some time."
Source: Dow Jones Newswires
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