06 November 2003

The Central Bank of Iceland publishes Peningamál (Monetary Bulletin)

On November 6, 2003, the Central Bank of Iceland published the November issue of Peningamál (Monetary Bulletin), a quarterly publication in Icelandic, including the Bank's quarterly inflation forecast and a macroeconomic forecast.

Inflation has been stable, remaining below the Central Bank's inflation target so far this year and well in line with forecasts made earlier this year. The forecast for GDP growth is now slightly lower than in July and will remain below the potential long-term growth rate of output, at 2% this year and 3% in 2004. In 2005 economic growth will gain momentum and be significantly above potential at 4¼%. There is currently some slack in the economy and according to the forecast it will not disappear until 2005. Inflation is expected to remain under the target throughout 2004 but slightly exceed the target towards the end of the two-year forecast horizon as the output gap closes, assuming an unchanged policy rate.

Unlike the July forecast, the current forecast does not take account of the proposed Norðurál aluminium smelter expansion, which is still somewhat uncertain. If the Norðurál expansion goes ahead in the next few months, annual output growth will be ½% greater in both 2004 and 2005 than in the current forecast. In that case, the output gap will be closed by next year, and inflation will exceed the target sooner and by more than otherwise.

The Bank kept its policy interest rate unchanged but indicated that interest rate increases are on the horizon.

As usual an unchanged monetary stance and exchange rate are assumed throughout the forecast period.

The English translation of Peningamál, Monetary Bulletin, will be published on the Bank's website, each chapter as soon as it becomes available. Below is a link to a preliminary English translation of the Bulletin's introductory chapter.

No. 24/2003
November 6, 2003

Link to the introductory chapter (pdf, 71 Kb)

Press release with tables on macroeconomic and inflation forecasts (pdf, 75 KB)