Wednesday, December 7, 2011

Iceland Central Bank Holds Rate at 4.75%

Iceland's Sedlabanki held its seven-day collateral lending rate unchanged at 4.75%.  The Bank said: "The nominal policy rate path required to bring inflation back to target is highly uncertain. In the near term, the current level seems broadly appropriate in light of the economic outlook and potential international headwinds. Looking further ahead, however, it will be necessary to withdraw the current degree of monetary accommodation as the recovery progresses and the slack in the economy disappears. The degree to which such normalisation takes place through higher nominal rates will depend on future inflation developments."

Iceland's central bank increased the rate 25 basis points at its previous meeting, after increasing the lending rate by 25 basis points to 4.50% in August.  Iceland reported headline inflation of 5.3% in October, compared to 5.7% in September, 5% in July, 4.2% in June, 3.4% in May, and 2.3% in March; inflation had previously been forecast to peak just above 3.0% around the middle of this year, meanwhile the Bank's inflation target is 2.5%.  Iceland's currency, the krona (ISK), last traded around 119 against the US dollar.


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