Monetary Policy

The Bank’s Monetary Policy Committee takes decisions on the application of the Bank’s monetary policy instruments. Decisions by the MPC must be based on the Bank's price stability objective and a thorough assessment of economic and monetary developments and prospects.

Monetary Bulletin is published four times a year. In early May and early November, it contains an inflation and macroeconomic forecast, together with an in-depth analysis of economic and monetary developments and prospects. The February and August issues include updated inflation and macroeconomic forecasts and an abbreviated report on economic and monetary developments and outlook. Monetary Bulletin is also issued in Icelandic under the title Peningamál.

One of the Bank’s key objectives is price stability, defined as a rise in the consumer price index of 2½% over a twelve-month period. The Bank’s most important tool in keeping inflation at the inflation target is the interest rate on its transactions with other financial institutions.

Various surveys and studies are carried out by the Central Bank of Iceland in order to gain a better view of domestic financial markets. Two surveys are conducted and published on a quarterly basis. A survey of market agents‘ expectations concerning a range of economic variables, and a survey among commercial banks on the development of the supply and demand for credit.

The principal policy instrument that the Central Bank uses to attain the inflation target is its interest rates on transactions with other financial institutions, which then affect other interest rates in Iceland. Commercial banks and pension funds generally change their interest rates after changes are made to the Central Bank’s key interest rate.