Another Icelandic Central Bank Rate Cut — 14th So Far

December 8, 2010

The central bank of Iceland’s seven-day collateralized lending rate was slashed by another 100 basis points to 5.5% and has dropped 1,250 basis points since the first of 14 reductions made in March 2009.  A statement from Icelandic monetary officials reiterated the factors cited at the time of the previous reduction, a 75-bp cut on November 3, and like then identified further scope for interest rate relief should the krona not decline unduly and assuming that inflation falls as forecast. Headline consumer prices posted a 12-month increase of 2.6% in November, down from 3.3% in October and 8.3% last April, while the CPI fell to 1.8% from 2.6% if the impact of a higher consumption tax is excluded.  GDP turned up in 3Q but still posted an on-year decline of 1.6%.  Expected inflation is falling amid continuing underutilized resources, and the krona has risen further relative to the euro.  The 7-day lending rate is now flanked by a 5.5% marginal lending rate and a 3.5% deposit rate.  The spread between those two rates was sliced to 200 basis points from 300 bps prior to today’s meeting. 

Today’s was the final of eight scheduled policy meetings in 2010.  Policy meetings at Sedlabanki during 2011 are scheduled for February 2, March 16, April 20, June 15, August 17, September 21, November 2, and December 7.

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



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