Central Bank of Iceland Changes Interest Rates

November 5, 2009

A full-percentage point reduction of Iceland’s seven-day collateral lending rate to 11% from 12% overstates today’s easing of monetary policy according to a statement from Icelandic monetary officials.  This was one of several rate changes to be implemented, some of which were up.  The main intent of the moves was to bring the whole constellation of rates controlled by monetary officials into better alignment, and the net impact of the changes will be to leave policy slightly easier to unchanged depending on the response of markets.  The statement notes that disinflation in Iceland has been less than hoped, with the CPI still showing an on-year increase in October of 9.7% due to more krona depreciation than assumed.  on a brighter note, the krona has been more or less stable since late summer, and that has positive implications for a further drop in inflation. If the exchange rate behaves, monetary policy will be able to ease additionally.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.


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