Iceland’s Minister of Finance addresses high inflation and borrowing challenges in recent broadcast

Iceland’s Minister of Finance has stated that it is part of the Icelandic DNA to accept high levels of inflation, suggesting that many in the country are becoming accustomed to this economic reality. He noted that the borrowing environment has become burdensome for many, although it is a positive sign that overdue payments have not risen significantly.

During a recent broadcast, Finance Minister Sigurður Ingi Jóhannsson discussed economic matters with Ragnar Þór Ingólfsson, leader of the VR labor union. The Central Bank of Iceland decided to maintain the interest rate at 9.25%, unchanged for nearly a year, which has significantly increased borrowing costs. Sigurður Ingi remarked that the economy is emerging from a period of considerable excess, urging for a soft landing as soon as possible. He expressed surprise that the economic situation is not worse than it is, given that household debt ratios are unusually low and household incomes have increased by approximately 30% over the last three years.

However, he acknowledged that high interest rates and inflation disproportionately affect certain groups, particularly young people. Although the financial strain is palpable, there has been no corresponding rise in defaults so far, possibly due to a retained purchasing power. Ragnar Þór pointed to warning signs, indicating that adjustable loans will increase and could lead to an escalation in defaults if the situation is not addressed soon.

Sigurður Ingi emphasized the long-term implications of the current interest rates and inflation levels, noting that public expectations are keeping inflation alive. He suggested that Icelanders may be more willing to accept higher inflation compared to citizens of other countries, which is impacting pricing strategies in the market.