Iceland’s central bank raised its main interest rate on Wednesday for the first time in nearly three years in response to good growth prospects and concerns about inflation.

Global stock markets have been rocked in recent weeks by concerns that central banks will begin to unwind their easy money policies to tame a surge in inflation fuelled by the economic recovery.

The European Central Bank, US Federal Reserve and Bank of England, however, have insisted that there is no need to raise rates for now. But Iceland pulled the trigger, raising its rate from 0.75 per cent to 1.0 per cent.

The European Central Bank, US Federal Reserve and Bank of England have insisted that there is no need to raise rates for now. But Iceland pulled the trigger

“The outlook has improved since the bank’s last forecast, owing largely to signs of a stronger recovery of domestic demand,” the Icelandic central bank said in a statement.

The bank added that inflation has been higher and more persistent than previously forecast, measuring 4.6 per cent in April. “Inflationary pressures appear to be widespread, as underlying inflation is broadly similar to headline inflation,” the statement said.

Production and distribution costs of goods have been pushed higher worldwide by disruptions caused by the pandemic while oil and commodity prices have surged, the bank said, while adding that the increases could be temporary.