20.03.2013

Statement of the Monetary Policy Committee 20 March 2013

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged.

Preliminary national account figures for 2012 suggest weaker growth than was forecast in February. Year-2011 growth figures have been revised upwards, however. The outlook is still for a gradual economic recovery, and leading indicators from the labour market are consistent with that prospect. Inflation, however, proved considerably higher in February than previously anticipated. On the other hand, the króna has appreciated from February onwards.

The Bank’s decision to suspend its programme of regular foreign currency purchases and support the exchange rate of the króna with foreign exchange intervention has, together with other measures, proven effective. The Bank’s actions have reduced the risk that self-fulfilling expectations of a depreciation will weaken the króna still further, and in this way they have supported monetary policy.

Although the economic recovery has lost some pace for the present, the margin of spare capacity in the economy has continued to narrow. The accommodative monetary stance supports the economic recovery. If inflation declines more slowly than was previously forecast, it will be necessary to reduce the monetary slack sooner than would otherwise be required. It is still the case that as spare capacity disappears from the economy, it is necessary that monetary policy slack should disappear as well. The degree to which such normalisation takes place through higher nominal Central Bank rates will depend on future inflation developments, which in turn will depend on exchange rate movements and wage-setting decisions in the near future.

 

No. 10/2013
20 March 2013

The rates of the Central Bank will be as follows:
Overnight lending rate 7.00%
Seven-day collateralised lending rate 6.00%
Maximum rate on 28-day certificates of deposit (CDs) 5.75%
Current account 5.00%

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