Central Bank of Iceland

November 6, 2013

Monetary officials decided to keep Iceland’s seven-day collateralized lending rate at 6.0%, its level over the past year encompassing eight interest rate policy meetings.  The rate was increased in six moves by 175 basis points between August 2011 and November 2012, and officials continue to signal an eventual need for more rate normalization as spare productive capacity dwindles.

The accommodative monetary stance has supported the economic recovery in the recent term. It is still the case that as spare capacity disappears from the economy, it is necessary that slack in monetary policy should disappear as well. The degree to which such normalization takes place through changes in nominal Central Bank rates will depend on future inflation developments, which in turn will depend on wage developments and exchange rate movements.

Compared to the previous set of macroeconomic forecasts were released in August, officials now see somewhat faster near-term growth but also greater price disinflation in the near term, with a restoration of in-target inflation toward end-2015, according to today’s statement.  The final Monetary Policy Committee meeting of 2013 is scheduled for December 11.

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



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