Bank of Iceland: No Rate Change

March 18, 2015

Iceland’s 4.5% seven-day term deposit rate, 5.25% seven-day collateralized lending rate, and 6.25% overnight lending rate were left unchanged after the latest review by the Monetary Policy Committee, which released a very similar statement to the prior one on February 4.  Officials are treating the recent slide of inflation cautiously.

Inflation has measured 0.8% in recent months and has been slightly negative if housing costs are excluded. Low global inflation and a stable króna contain inflation and offset the effects of considerable domestic wage increases. Inflation expectations had subsided to target at the beginning of the year. However, there are indications that they have risen again in recent weeks, possibly reflecting expectations that the results of the forthcoming wage settlements will not be in line with the inflation target.

As before, policy guidance defers to forthcoming data and developments.  There’s no indication of when rates might change next, and the direction of the movement could be either up or down, depending in large part on the consistency of upcoming wage settlements with the inflation target.  Late in 2014, interest rates were cut by 25 basis points in November and another 50 bps in December.  Previously, rates were lifted by a total of 175 basis points between August 2011 and the end of 2012.  The current stance is explicitly deemed “appropriate” for now. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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