Central Bank of Iceland: No Rate Hike this Month

December 12, 2012

Sedlabanki has instituted six central bank interest rate tightenings since August 2011, most recently a 25-basis point hike of the seven-day collateralized lending rate on November 14 to 6.0%.  Earlier moves occurred in June, May, March and August and November of 2011.  Only the 50-bp increase in May 2012 was not be 25 basis points.  At this month’s policy meeting, monetary officials decided not to tighten further, although the warning was reiterated that “as spare capacity disappears from the economy, it is necessary that monetary policy slack should disappear as well.”  Lessening inflation and the earlier increases of the central bank’s nominal lending rate have withdrawn policy accommodation.  Today’s statement observes that growth and inflation have recently been consistent with what policymakers had been expecting, and broad krona stability has depressed inflation.  Considerable stress has been placed on upcoming wage settlements in helping to guide policymakers in the near term:  “Whether the Bank’s nominal interest rates remain unchanged in the near term will depend, among other things, on whether the outcome of the forthcoming wage settlement review at the beginning of next year is consistent with inflation declining to the target.”

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



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