Central Bank of Iceland raises rates in post-COVID optimism
Information gathered in the bank’s recently published Monetary Bulletin 2021/2 seems to indicate that the COVID-19 pandemic’s effects have not been as harsh as predicted.
Key facts provided include:
- Iceland’s GDP actually grew more between Q3 and Q4 of 2020 than previously forecast in February 2021. Furthermore, GDP is now expected to grow 3.1% for the year as opposed to 2.5%
- Economic contraction in the first three quarters of 2020 was also smaller than anticipated: 6.6% instead of 7.7%
- Unemployment peaked in January as has since begun to recede, which the bank considers evidence of a demand for labour
An indication of European banking’s recovery?
Following these encouraging results, CBI has lifted seven-day term deposit rates to 1%. Under normal circumstances the 0.25% increase might have been unremarkable, but two factors have made it significant: 1) it’s the bank’s first interest rate hike in over 30 months, and 2) other banks in western Europe are decidedly not in position to do likewise.
In early February 2021, the Bank of England set interest rates at 0.1% and made ominous statements about the potential for negative interest. With growth in the UK now accelerating at record levels, this threat appears to have been averted, although rates are still being maintained at their previous near-zero level.
Other countries such as Belgium, France, Germany, Italy, the Netherlands, and Spain remain at 0%, while Denmark and Switzerland have both entered negative interest rates at -0.5% and -0.75% respectively.
Therefore, Iceland’s ability to break away from the prevailing trend of its regional contemporaries makes it a compelling case study in the ongoing, post-pandemic recovery.
Asgeir Jonsson, acting Governor of CBI, called the interest hike a positive reaction to exceeding economic expectations and stressed that avoiding negative rates was imperative for Iceland’s relatively young population (the median age is 37.5).
“We were preparing to have to use non-conventional monetary policy like quantitative easing to stimulate the economy, but in the end the need was not really there,” he said.
All eyes will be on Iceland’s continued fortune as an indicator of banking’s short-term recovery prospects on the continent
CMA warns UK and Irish banks over bank transaction histories
Specifically, the CMA named prominent challenger bank Monzo, the Bank of Ireland, NatWest Group, and Virgin Money as not providing customers with records of their bank transactions within the maximum outlined timescale (40 days after closing the account).
Such information is crucial not only for ensuring a smooth transition from one bank to another, but also to provide a foundation for credit applications in the future.
According to the Retail Banking Market Investigation Order 2017, 95% of bank and building society customers should receive their bank transaction histories in at least 10 days.
Reputation: A bank’s greatest asset?
Of the 150,000 customers affected, Monzo was by far the main contributor - 143,000 (95.3%) - with the other three dividing the remaining 7,000.
The extent to which the magnitude of its mistake is attributable to being a digital-only bank is not clear, although it may give some customers pause for thought. With a superior customer experience being among the bank’s greatest assets, continued reputational damage is something that it cannot afford to sustain.
Although the CMA’s action in this instance has been to issue each bank a warning and order the immediate dispatch of all outstanding information, it has warned that future breaches will carry heavier consequences. Measures could include legally enforceable compliance audits on a yearly basis.
Helping customers get a better deal
Condemning the banks for negligence that could negatively impact customers’ desires to take out loans or mortgages, Adam Land, CMA Senior Director of Remedies Business and Financial Analysis, promised that his organisation would remain vigilant to similar behaviour moving forward.
“Banks must comply with all the rules – that includes providing a full transaction history promptly.
“We will be watching closely to make sure these leading names stick to their word and don’t let their customers down again. The Bank of Ireland, Monzo, Natwest Group, and Virgin Money should be in no doubt that the CMA stands ready to take further action if these failures are repeated.
Image source: gov.uk