The monetary policy committee of the Central Bank of Iceland announced this morning its intention to reduce the policy rate from 13 to 12 percent. The rate on overnight loans will also drop by one percent but other Central Bank rates remain unchanged.
The Central Bank of Iceland. Photo by Páll Stefánsson.
The last policy rate decision was made early last month, when the policy rate was reduced by 2.5 percent, from 15.5 to 13 percent.
The representatives of both the Icelandic Confederation of Labor (ASÍ) and the Confederation of Icelandic Employers (SA) have stated that a considerable reduction of the policy rate must take place before an agreement on a stabilization pact can be reached. This decision is therefore likely to have a significant impact on their talks, mbl.is reports.
However, representatives of the International Monetary Fund (IMF) in Iceland announced recently in a press conference that they believed the position of the Icelandic króna had to be considered carefully along with the economic forecast before a decision is made on a considerable reduction of the policy rate.
IMF representatives stated that it could be risky to lower the rate during the current circumstances, although emphasizing that the decision is in the hands of the Central Bank.
Central Bank governor Svein Harald Oeygard stated on May 7, when the policy rate was lowered to 13 percent, that it would be reduced by a higher percentage in June provided certain conditions were at hand.
These conditions include that the exchange rate of the króna is stable, that government operations are in restraint and that an agreement on the obligations of the now state-run Landsbanki Bank on the Icesave deposits is on the table. Only a part of these conditions has been fulfilled.
Click here to read more about the talks between ASÍ and SA.