Iceland keeps rate unchanged as volcano eruption looms

Reykjavik: Iceland's central bank said Wednesday it was keeping its key interest rate unchanged despite a poor inflation outlook, citing economic uncertainty over the impact of a looming volcano eruption.

The monetary policy committee of "the Central Bank of Iceland has decided to keep the Bank's interest rates unchanged," the bank said in a statement, adding it would remain at 9.25 percent.

The committee noted that inflation on the subarctic island had fallen slightly, coming in at 7.9 percent in October, but said in its latest forecast the "inflation outlook has deteriorated."

This suggested that "it may prove necessary to tighten the monetary stance still further."

However, the committee opted to leave it unchanged "owing to uncertainty about the economic impact of seismic activity on the Reykjanes peninsula."
Iceland has been on high alert for a potential volcanic eruption in recent weeks.

Thousands of small earthquakes have been recorded on the island's southwestern peninsula as magma shifts under the Earth's crust.

The roughly 4,000 residents of Grindavik, a fishing port around 40 kilometres (25 miles) from the capital, were evacuated on November 11.

Iceland is home to 33 active volcano systems, the highest number in Europe.

The Reykjanes peninsula had not experienced an eruption for eight centuries until 2021.

Since then, three eruptions have struck -- all in remote uninhabited areas -- and volcanologists say this could be the start of a new era of activity in the region.

At the same time, Icelandic Prime Minister Katrin Jakobsdottir told a press conference over the weekend that "no country is better prepared for natural disasters than Iceland."

"We have long experience in dealing with volcanic eruptions. We know that it's not necessarily a sound decision to build for example defence mechanisms when you have such a great uncertainty where an eruption can come up," she said.