Bank of Iceland

December 7, 2011

Sedlabanki’s benchmark seven-day collateralized lending rate was left at 4.75%.  Two 25-basis point increases were implemented after policy meetings on May 17 and November 2, while fifteen prior reductions from August 2009 through February 2011 slashed the key interest rate from 18.0% to a low of 4.25%. 

A new statement today from Icelandic monetary authorities sends two messages, first that it is appropriate for policy restraint to pause in the near term pending clarification of potential global headwinds but, second, that in the longer run “it will be necessary to withdraw the current degree of monetary accommodation as the recovery progresses and the slack in the economy disappears.”  Iceland’s economy continues to expand, and inflation is expected to recede from its current above-target level into prescribed acceptable boundaries.  The evolution of inflation in the future will be provide guidance for the timing of further rate hikes.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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