The Central Bank of Iceland lowers interest rates
The Board of Governors of the Central Bank of Iceland
has decided to lower the interest rate in the Bank's repurchase transactions by
0.3 percentage points to 6.8%, effective at the next auction of repurchase
contracts on October 22, 2002.
On September 18, 2002, the Central Bank
announced a lowering of its interest rate by 0.5 percentage points. The decision
to lower interest rates at that time was taken in view of rapidly declining
inflation and an increasing evidence of growing slack in the economy.
Furthermore, the Central Bank declared that if new data confirmed the existing
trend of declining inflation towards the Bank's inflation target and growing
slack in the economy, interest rates would be lowered further.
There are
particularly three aspects of recent developments which confirm the Central
Bank's previous assessment of the inflation outlook and the state of the
economy. Firstly, the inflation forecast for the third quarter of the year was
almost exactly on target, as was the forecast for the second quarter. Hence, the
outlook for attaining the inflation target during the fourth quarter of 2002 has
strengthened. Secondly, unemployment figures for September indicate increasing
slack in the labour market, with the seasonally adjusted rate of registered
unemployment rising to about 3%. Thirdly, the outlook for economic growth in
2003, according to recent forecasts, has deteriorated somewhat since the summer,
provided that envisaged large investment projects will not significantly affect
the outcome that year.
The Central Bank will publish a new inflation forecast
and its assessment of economic prospects in its quarterly publication, Monetary
Bulletin (Peningamál), on November 6, 2002. These will lay the foundation for
the monetary policy decisions of the Bank in the coming months.
14/2002
October 15, 2002