Statement of the Monetary Policy Committee 2 October 2019

Central Bank of Iceland

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to lower the Bank’s interest rates by 0.25 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 3.25%.

According to preliminary national accounts figures, output growth continued to ease in H1/2019, even though it was somewhat stronger than was forecast in the August Monetary Bulletin. This relatively stronger growth is due mainly to a more favourable contribution of net trade, as demand has shifted towards domestic production, partially offsetting the contraction in exports. Leading indicators imply that economic activity will continue to slow, although there are signs that the economy may be regaining a foothold.

Headline inflation measured 3.1% in Q3, after falling between quarters, while underlying inflation rose month-on-month in September. Headline inflation was slightly lower than was forecast in August, and the outlook is for it to ease faster than was assumed there. The króna has appreciated, and inflation expectations have fallen since the MPC’s last meeting. The monetary stance has therefore tightened slightly.

Recent developments suggest that economic activity has been stronger than previously assumed. On the other hand, the outlook is uncertain, particularly for the global economy. As a result, domestic GDP growth could weaken more rapidly than is currently expected.

Near-term monetary policy decisions will depend on the interaction between developments in economic activity, on the one hand, and inflation and inflation expectations, on the other.

1. Overnight loans 5.00%
2. Seven-day collateralised loans 4.00%
3. Seven-day term deposits 3.25%
4. Current accounts 3.00%
5. Minimum required reserves, average maintenance 3.00%
6. Minimum required reserves, fixed requirement 0.00%

Interest rates 2 October 2019


No. 20/2019
2 October 2019