06 November 2002

The Central Bank of Iceland publishes Monetary Bulletin and lowers interest rates

On November 6, 2002, the Central Bank of Iceland published the November issue of Peningamál (Monetary Bulletin), including the Bank's quarterly inflation forecast, and for the first time, a macro-economic forecast as well. Inflation has continued to slow down over the past quarter and the Central Bank's inflation target should be attained by the end of the year. According to the Bank's forecast, price stability will also prevail for the next two years.

GDP growth is expected to be sluggish next year, at 1½%, but recovery will likely gain some momentum in 2004. A growing slack in the economy will emerge as growth remains below potential. This and favourable external balance should contribute to exchange rate stability as well as price stability over the forecast period. This issue of Monetary Bulletin includes a discussion on the problems that uncertainty concerning conceivable large scale investment projects in hydropower and power-intensive industry pose to the conduct of monetary policy.

On the basis of the forecasts and analysis published in this issue of Monetary Bulletin, the Board of Governors of the Central Bank of Iceland decided to lower the yield in the Bank's repurchase agreements with credit institutions by 0.5 percentage points, to 6.3 percent, effective at the next auction of repurchase agreements on November 12, 2002.

The English translation of Peningamál, Monetary Bulletin, will appear on the Bank's website, each chapter as soon as it becomes available. Attached is a preliminary English translation of the Bulletin's introductory chapter.

Nr. 16/2002
November 6, 2002

The announcement with the introduction to MB