On July 31, 2003, the Central Bank of Iceland publishedthe August issue of Peningamál (Monetary Bulletin), a quarterly publication inIcelandic, including the Bank's quarterly inflation forecast and a macroeconomicforecast. Inflation has remained below the Central Bank's inflation target sofar this year and was somewhat lower in Q2/2003 than the Central Bank hadforecast in May. Slack in the economy, a strong króna and low global inflationwill contribute to a low rate of inflation in the short term, and inflation isexpected to remain below the target throughout 2004. Towards the end of thetwo-year forecast period inflation will approach the target and exceed it in thefirst half of 2005, given an unchanged policy rate.
An economic recovery hasbegun and most indications are that the upswing will gain momentum during thecoming winter. There is still slack in the economy, but leading indicators suchas credit growth and company manpower plans strongly suggest that demand willcontinue to increase in the near future. No major changes have occurred inthe assumptions or results of the macroeconomic forecast since May. Slightlyhigher GDP growth is expected this year and in 2004, among other things becauseof large fish catches this year and a weaker exchange rate than assumed in thelast forecast. GDP growth is now forecast at 2¾% this year and 3½% next year. Asusual an unchanged monetary stance and exchange rate are assumed throughout theforecast period.
The English translation of Peningamál, Monetary Bulletin,will appear on the Bank's website, each chapter as soon as it becomes available.
13/2003
July 31, 2003