Uncertainty on Inflation after Prime Minister's Statement


Uncertainty on Inflation after Prime Minister's Statement

Sigmundur Davið Gunnlaugsson

Photo: Páll Stefánsson.

In an interview on Sunday morning with Gísli Marteinn Baldursson on RÚV, Icelandic State Radio, Prime Minister Sigmundur Davíð Gunnlaugsson said that “it would be good to have an independent Central Bank, if we had a different government.” He had been asked whether it had been decided to appoint an additional two governors of the Central Bank, taking the number to three, as it was until the spring of 2009.

Már Guðmundsson, the current Central Bank governor, will have finished his five-year term in September this year. The Prime Minister did not answer whether there would be two more governors, but neither did he deny it. The webpage eyjan.is has reported that a motion will be put forward in Alþingi, Iceland’s parliament, to appoint two more governors, presumably from the two government parties.

IFS consulting, a finance and research company, said today that the Prime Minister's words might indicate that the independence of the Central Bank would be diminished. He might flex his power to force the bank to lower the interest rate, hence increasing inflation pressure, mbl.is reports. The report adds: “There is too much uncertainty on the government’s intentions to say whether the Central Bank's independence will in fact be diminished.” However, should that happen, the inflation outlook becomes worse.

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