09 December 2015

Statement of the Monetary Policy Committee 9 December 2015

Central Bank of Iceland

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore remain 5.75%. The Committee has also decided to lower reserve requirements by 1.5 percentage points.

According to newly published preliminary figures from Statistics Iceland, year-on-year GDP growth over the first three quarters of 2015 measured 4.5%, which is broadly in line with the Bank’s November forecast. Furthermore, the labour market continues to recover strongly.

The short-term inflation outlook has improved since the November forecast. Inflation measured 2% in November and has risen less rapidly in the recent term than had been projected, as the decline in global oil and commodity prices and the appreciation of the króna have offset domestic price increases.

A stronger króna and more favourable global price developments have provided the scope to raise interest rates more slowly than was previously considered necessary. However, this does not change the fact that, according to the Bank’s November forecast, a tighter monetary stance will probably be needed in the coming term, in view of growing domestic inflationary pressures. How much and how quickly the monetary stance must be tightened will depend on future developments.

At its September meeting, the MPC decided to raise reserve requirements temporarily from 2% to 4% so as to strengthen the Central Bank’s liquidity management in connection with its foreign currency purchases and the liberalisation of the capital controls. The Committee has now decided to lower reserve requirements from 4% to 2.5% as of the next reserve maintenance period, which begins on 21 December, so as to mitigate the liquidity effect of the stability contributions paid by the failed banks’ estates. Other things being equal, the MPC plans to lower the reserve requirements back to 2% in connection with the planned auction of offshore krónur.

No. 26/2015
9 December 2015

The interest rates of the Central Bank will be as follows:
Overnight CBI rates: 7,5%
7 day collateralized lending rate: 6,5%
7 day term deposit: 5,75%
CBI current account rates: 5,5%

 Central Bank of Iceland interest rates