Iceland's Sedlabanki kept its seven-day collateral lending rate steady at 4.75%. The Bank said: "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 Central Bank rates will depend on future inflation developments. In the absence of an improvement in the inflation outlook, an increase in nominal interest rates will probably be required in the near term in order to bring the monetary policy stance, which is still quite accommodative, to an appropriate level."
Iceland's central bank increased the rate 25 basis points at its November monetary policy meeting, after increasing the lending rate by 25 basis points to 4.50% in August. Iceland reported headline inflation of 6.5% in December, up from 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; the Bank's inflation target is 2.5%. Iceland's currency, the krona (ISK), last traded around 122.2 against the US dollar.
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