Iceland’s Central Bank Keeps Interest Rates Unchanged

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Iceland’s Central Bank Keeps Interest Rates Unchanged

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged, as stated in an announcement by the bank earlier today.

centralbank_ipa

Photo copyright Icelandic Photo Agency.

The seven-day collateralized lending rate remains at 6 percent.

According to the Bank’s forecast, the outlook for 2013 is for somewhat stronger output growth than in the August forecast, or 2.3 percent, whereas the outlook for the next two years is broadly unchanged. The recovery of the labor market continues with increased strength, with total hours worked rising more this year than in any year since 2007, the statement says.

Inflation has also tapered off but upcoming wage negotiations are expected to bring about wage settlements that are larger than is consistent with the inflation target. If that happens, the Central Bank may raise nominal interest rates.

Today’s statement from the Monetary Policy Committee highlights the uncertainty in how foreign debt deleveraging, the settlement of the failed banks’ estates, and capital account liberalization will affect the exchange rate. It also states that Iceland’s terms of trade have continued to deteriorate for some time, eroding the current account surplus and putting pressure on the exchange rate of the króna.

Click here to read the statement in full.

ZR