16 March 2016

Statement of the Monetary Policy Committee 16 March 2016

The Monetary Policy Committee of the 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%.

According to Statistics Iceland estimates, GDP growth measured 4% in 2015, well in line with the Central Bank’s February forecast. Furthermore, indicators year-to-date suggest that the outlook for 2016 is broadly unchanged and that GDP growth will be robust in the coming term.

Inflation measured 2.2% in February and has risen by just over 1 percentage point in the past year. As before, domestic inflationary pressures and imported global deflation tend to offset one another. Inflation looks set to remain below the target well into this year, but the outlook is uncertain, including for import prices.

Global price developments and a stronger króna 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 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.

No. 7/2016
16 March 2016