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Interest rates remain unchanged

The Central Bank of Iceland.
The Central Bank of Iceland. Vísir/GVA
The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged.  GDP growth lost pace somewhat in the first half of the year but was broadly in line with the August forecast as published in Monetary Bulletin 2014/3.

Statement from the Central Bank

Inflation, which now measures 1.8%, has been below target for eight consecutive months, and the outlook for coming months is for lower inflation than was projected in August. Inflation expectations have moved towards the target in the recent term, while long-term expectations remain somewhat above it. Foreign exchange inflows have continued, but the Central Bank’s intervention in the foreign exchange market has helped to stabilise the króna.

The monetary stance has tightened more than previously expected, due to more rapid disinflation and declining inflation expectations. Recent implementation of new national accounts standards introduces a measure of uncertainty about the interpretation of new data, temporarily complicating the assessment of the appropriate monetary stance. As before, robust near-term growth in domestic demand and growing tension in the labour market could generate increased inflationary pressures, however, and necessitate an increase in the Bank’s nominal interest rates.

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