Central Bank of Iceland Cuts Key Interest Rates by 75 Basis Points

September 22, 2010

Monetary officials in Iceland reduced all key interest rates today, including the main seven-day collateralized lending rate from 7.0% to 6.25%.  This was the sixth cut in 2010, all of which total 375 basis points.  Six rate cuts also were made in 2009, totaling 800 basis points, from a peak of 18% after an IMF-mandated 300-bp rate hike in October 2008. 

Some highlighted points made in a statement released by officials today are

  • Economic recovery in Iceland appears to have begun in the second half of this year.
  • CPI inflation has fallen sharply, registering an on-year increase in August of 4.5% versus 8.3% just four months previously.
  • Expected inflation is declining, and a further drop in actual inflation appears likely.
  • By early 2011, inflation will move below its target.
  • The krona remains well-bid, firming another 0.5% against the euro and on a trade-weighted basis since the meeting of August 18.
  • Unless the krona depreciates or inflation fails to drop further, further rate cuts are likely.

Street estimates had actually looked for a 100-basis point rate cut this month, that being the size of the reduction made in August.  The four prior cuts in 2010, which were made in January, March, May and June were each moves of 50 basis points.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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