Iceland's central bank has raised its interest rates by a quarter point, taking its benchmark rate to 4.5%, saying inflation continued to climb despite global financial turmoil.
The Sedlabank said the increase reflected the fact that the inflation outlook for the coming two years had deteriorated since its last meeting in June.
Iceland's economy, which was among the hardest hit by the 2008-2009 global financial crisis, is continuing to recover and the crisis elsewhere in the world is no reason to maintain low rates, the bank said.
It added that there was little risk of the 'modest' rates rise derailing Iceland's recovery, as there was 'growing momentum' in the domestic economy.
Icelandic inflation has risen sharply in the past five months, and in July stood at 5%, which is double the official inflation target of 2.5% and far higher than the 1.8% inflation recorded in January. The central bank blamed the high rate on a weak krona and rising house and oil prices.
Today's rate movement was the first since the central bank lowered rates in February amid a dip in inflation. The rate had soared as high as 18% following the near-collapse of Iceland's economy after its major banks went belly-up at the end of 2008.
