The Board of Governors of the Central Bank of Iceland has decided to lowerthe yield in the Bank's repurchase transactions with credit institutions by 0.5percentage points effective at the next auction of repurchase contracts on May21, 2002. The Bank has thus lowered its instrument rate by a total of 1.3percentage points since April 1 and by a total of 2.1 percentage points sinceNovember 2001. The rate on overnight loans will also be lowered by 0.5percentage points on May 21, but the rate on current account deposits in theBank will be lowered by 0.2 percentage points.

 In its quarterly publication Peningamál (Monetary Bulletin) issued onMay 7, The Central Bank of Iceland stated that if all uncertainty were to bedispelled in May as to whether current wage agreements would remain in force,the Bank would in all probability cut its interest rates soon afterwards. Thisuncertainty has now been eliminated as the CPI for May was below thereview-triggering level agreed by the private labour market participants inDecember 2001. The background to today's decision is provided in the MonetaryBulletin (see also Press Release nr. 6/2002 of May 7, 2002). Confirmation thatthe deceleration of inflation will continue to be in line with the inflationforecast published in the Monetary Bulletin will, other things being equal, leadto further reductions in the instrument rate of the Central Bank in comingmonths.

Nr. 7/2002

May 16, 2002