Lowers interest rates by 0.25 percent
mbl.is/Ómar Óskarsson
The Monetary Policy Committee of the Central Bank of Iceland decided this morning to lower the bank’s interest rates by 0.25 percentage points. According to the bank’s forecast the outlook for 2014 is for somewhat weaker output growth than was forecast in August.
"Domestic demand growth is still expected to be strong, with robust GDP growth in the next three years. The recovery of the labour market continues as well, although growth in labour demand has lost pace somewhat. Inflation has been below the inflation target for nine consecutive months and has fallen still further this autumn. Rising house prices have been the main source of inflation, while low global inflation and a stable króna have contributed to low inflation in spite of considerable wage increases."
The CBI says the short-term inflation outlook has therefore improved since August. Inflation is likely to fall further in the next few months and remain at or below target through mid-2015 according to the bank’s forecast. The CBI furthermore says inflation expectations have fallen in recent months and are approaching the inflation target. "Increased national saving and a larger current account surplus than foreseen in previous forecasts have contributed to continued strong foreign currency inflows, and the Bank has leaned against excessive appreciation of the króna and helped to stabilise the exchange rate."
The CBI warns that large pay increases in upcoming wage settlements and strong growth in demand could undermine the recently achieved price stability and require that interest rates be raised again. However, if pay increases are consistent with the inflation target conditions for further reductions in nominal interest rates could develop.
The interest rates of the CBI will be as follows:
Overnight lending: 6,75%
7 day collateral lending: 5,75%
Current account: 4,75%
7 day term deposits: 5,00%
