"Quite Accommodative" Icelandic Monetary Policy Unchanged

February 8, 2012

Sedlabanki’s Monetary Policy Committee (MPC) retained a 4.75% Icelandic seven-day collateralized lending rate.  This is 175 basis points lower than on-year inflation even after two 25-basis point increases administered last August and November.  A statement from the MPC accentuates the upward bias of rates in the future, calling the present stance "quite accommodative" and conceding that the downtrend of inflation, which accelerated from 5.0% on year in July to 6.5% last month, will progress more slowly than predicted back in November.  Like other parts of Europe, Iceland faces an uncertain outlook and softer global and regional demand, but the economic recovery is expected to continue, and inflation will exceed target until well into next year.  Warning has been served that it probably will not be long before a third tightening is implemented. 

In the absence of an improvement in the inflation outlook, an increase in nominal interest rates will probably be required in the near term in order to bring the monetary policy stance, which is still quite accommodative, to an appropriate level.

Today’s was the first of eight scheduled policy meetings of 2012.  The second and third ones will be on March 21 and May 16.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.