(Bloomberg) -- Iceland’s central bank needs inflation expectations to subside before it can reverse western Europe’s most aggressive monetary policy, according to Governor Asgeir Jonsson.

The Sedlabanki is hamstrung by expectations for price growth that are “way too high,” Jonsson said in an interview in Reykjavik on Wednesday after policymakers kept borrowing costs at 9.25%. 

Read More: Iceland Holds Rates at 9.25% as Inflation Remains Stubborn 

“High expectations basically force us to wait with the rate cuts until lower inflation has been established in the data,” Jonsson said. “We have to use brute force which is necessary although its painful.”

Inflation, at 6%, remains significantly above the central bank’s 2.5% target, while two- and five-year inflation expectations of businesses, market agents and households have eased somewhat to 4-5%, according to the central bank’s latest monetary policy bulletin, published on Tuesday. 

Jonsson said he was also worried that housing supply isn’t keeping up with the demand even though there is “no housing bubble” in the north Atlantic nation at the moment. Housing prices have gained in past months partly due to volcanic activity that forced 1% of the nation to relocate. 

The governor called the comments by Finance Minister Sigurdur Ingi Johannsson, who urged policymakers on Tuesday to consider rate cuts, “understandable” given “very challenging times” for the fiscal authorities. Yet he pledged the central bank will “focus on our goal.”

“Higher rates hurt, and we’ve been relatively satisfied with the fiscal plan, at least for this year,” Jonsson said. “Monetary policy is working as it is supposed to, except for the fact that inflation expectations are not going down.”

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