Statement of the Monetary Policy Committee 13 June 2018
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 preliminary national accounts figures recently published by Statistics Iceland, GDP growth measured 6.6% in Q1/2018, well above the growth rate in H2/2017. Although this is slightly higher than the Central Bank projected in May, overall developments are in line with the Bank’s forecast. GDP growth is still expected to ease this year, with weaker export growth and a less rapid increase in domestic demand. Developments in house prices and indicators from the labour market point in the same direction.
Inflation fell to 2% in May, but in recent months both headline and underlying inflation have been close to the Bank’s 2½% inflation target. The year-on-year rise in house prices continues to ease, and the opposing effects of previous appreciation of the króna have diminished. This trend will probably continue in the near term. The króna has depreciated slightly since the last MPC meeting, but the foreign exchange market has remained well balanced. On the whole, inflation expectations appear consistent with the target.
The outlook is for the positive output gap to narrow. Nevertheless, a tight monetary stance is still needed in light of rapid demand growth and underlying pressures in the labour market.
13 June 2018
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%