Statement of the Monetary Policy Committee 13 December 2017
The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore remain 4.25%.
According to the newly published national accounts, GDP growth in the first nine months of the year measured 4.3%, more than previous figures had indicated. As a result, the outlook for 2017 as a whole is for stronger GDP growth than was forecast in the November Monetary Bulletin. Export growth continues to ease, while domestic demand is growing faster than previously projected, owing in part to more fiscal slack in 2017 than was previously expected.
Inflation measured 1.7% in November and has fluctuated between 1½% and 2% for some time. House price inflation continues to ease. Other things being equal, this will contribute to lower headline inflation, although it will be offset by the waning effects of past appreciation of the exchange rate. The foreign exchange market has been well balanced since the last MPC meeting, and the exchange rate of the króna has been broadly stable. Inflation expectations remain well in line with the target, and the Bank’s real rate has been largely unchanged in recent months.
The outlook is for continued strong demand pressures in the domestic economy. This calls for a tight monetary stance, and if fiscal policy in 2018 proves more accommodative than was assumed in November, it will require a tighter monetary stance than would otherwise be needed. In the coming term, the monetary stance will depend on economic developments, including fiscal policy and the results of wage settlements.
The Bank’s interest rates will therefore be:
1. Overnight loan: 6.00%
2. 7 day collateralised lending rates: 5.00%
3. Seven-day term deposit: 4.25%
4. Current accounts: 4.00%
5. Minimum required reserves: 4.00%
13 December 2017