The Monetary Policy Committee (MPC) of the Central Bank of Iceland announced its decision yesterday to keep the bank’s key interest rate unchanged at 4.5 percent after raising it by 0.25 percentage points in August.
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The overnight lending rate is 5.5 percent, seven-day collateralized lending rate 4.5 percent, the maximum rate on 28-day certificates of deposits (CDs) 4.25 percent and the current account rate 3.5 percent, as stated on the Central Bank’s website.
Recovery of output and employment is underway and, in the absence of a significant appreciation of the króna, inflation will remain well above the bank’s inflation target for some time but return to target over the medium term, the bank’s forecast states.
Global financial market unrest and weaker-than-expected output growth in the world economy create uncertainty about inflation and growth prospects in Iceland. The risk of an adverse effect on the domestic economy has grown since the last MPC meeting.
Nevertheless, inflation prospects suggest that, over the medium term, it is appropriate to continue the gradual withdrawal of monetary accommodation begun in August.
The risk that a modest interest rate hike will derail the economic recovery is low. However, somewhat more favorable than expected inflation figures in August, continued strengthening of the króna, and a weaker outlook for the global economy allow the MPC to keep rates on hold at present.
Still, in order to contain inflation, it may prove necessary to raise interest rates further. As always, however, monetary policy decisions depend on recent developments and prospects, the bank’s statement concludes.
Click here to read about the last key interest rate decision.