Central Bank of Iceland

October 2, 2013

Iceland’s Monetary Policy Committee left its 7-day collateralized interest rate at 6.0%, a third as much as the pre-March 2009 high and the prevailing level since a 25-basis point increase in November 2012, which had been the sixth advance since August 2011 from a base of 4.25%.  Icelandic GDP growth was roughly 2% in the first half of 2013, inflation has firmed in line with expectations, and price expectations remain pretty stable.  Today’s statement warns against excessive wage demands:

it was assumed, based on past experience, that wage increases in the forthcoming wage settlements would be larger than is consistent with the inflation target. If wage increases are in line with the forecast, it will probably be necessary to raise the Bank’s nominal interest rates, other things being equal, particularly if the margin of spare capacity in the economy continues to narrow.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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