One of the Central Bank of Iceland’s main objectives is to promote price stability. Price stability is defined as an annual inflation rate of 2½%, which is the Bank’s inflation target. The Bank is required to keep average inflation as close to that level as possible. The Bank’s most important tool in keeping inflation at the inflation target is its key interest rate; i.e., the interest rate on its transactions with other financial institutions. The Monetary Policy Committee (MPC) takes decisions on the application of the Bank’s monetary policy instruments. Successful monetary policy can foster greater prosperity domestically by ensuring price stability.