Statement of the Monetary Policy Committee 12 June 2013

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

GDP growth appears to have been somewhat weaker in the first quarter than was forecast in the May issue of Monetary Bulletin. It is too early to assert that the growth outlook for the year as a whole has deteriorated, however, because more often than not, output growth figures are revised upwards after the first estimates are published; furthermore, the most recent indicators of demand suggest that the economic recovery is developing broadly in line with the Bank’s forecast.

The inflation outlook has changed little since the May forecast. Inflation has declined in recent months and now measures 3.3%. Underlying inflation and inflation expectations have declined as well but remain above the Bank’s inflation target.

The exchange rate of the króna has been broadly unchanged since the last MPC meeting. The Bank’s foreign exchange market intervention policy formulated by the MPC appears to have contributed to greater exchange rate stability and is therefore conducive to providing a firmer anchor for inflation expectations and promoting more rapid disinflation than would occur otherwise.

Monetary policy must always take account of fiscal policy and other factors that affect aggregate demand. There is some uncertainty about the path public sector finances will take in coming years. It is critical that Treasury finances be brought into balance as soon as possible so that the monetary and fiscal policy mix contributes to external balance of the economy, fosters overall economic stability, and delivers inflation close to target, at the lowest possible cost.

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 normalisation 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.

No. 20/2013
12 June 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%