On November 6, 2002, the Central Bank of Icelandpublished the November issue of Peningamál (Monetary Bulletin), including theBank's quarterly inflation forecast, and for the first time, a macro-economicforecast as well. Inflation has continued to slow down over the past quarter andthe Central Bank's inflation target should be attained by the end of the year.According to the Bank's forecast, price stability will also prevail for the nexttwo years.
GDP growth is expected to be sluggish next year, at 1½%, butrecovery will likely gain some momentum in 2004. A growing slack in the economywill emerge as growth remains below potential. This and favourable externalbalance should contribute to exchange rate stability as well as price stabilityover the forecast period. This issue of Monetary Bulletin includes a discussionon the problems that uncertainty concerning conceivable large scale investmentprojects in hydropower and power-intensive industry pose to the conduct ofmonetary policy.
On the basis of the forecasts and analysis published inthis issue of Monetary Bulletin, the Board of Governors of the Central Bank ofIceland decided to lower the yield in the Bank's repurchase agreements withcredit institutions by 0.5 percentage points, to 6.3 percent, effective at thenext auction of repurchase agreements on November 12, 2002.
The Englishtranslation of Peningamál, Monetary Bulletin, will appear on the Bank's website,each chapter as soon as it becomes available. Attached is a preliminary Englishtranslation of the Bulletin's introductory chapter.
Nr. 16/2002
November 6, 2002