16 May 2002

The Central Bank of Iceland lowers interest rates

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

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


Nr. 7/2002
May 16, 2002