By CentralBankNews.info
Iceland’s central bank left its benchmark seven-day deposit rate steady at 5.75 percent and confirmed its guidance from last month that it is likely to tighten its monetary policy stance in the near term but global price developments and a stronger exchange rate for the krona had “provided the scope to raise interest rates more slowly than was previously considered necessary.”
The Central Bank of Iceland (CBI), which raised its rate by 125 basis points last year, said domestic inflationary pressures and imported global deflation were still offsetting each other and even if inflation looks to remain below the target, the outlook for import prices is uncertain.
Iceland’s inflation rate rose to 2.2 percent in February from 2.1 percent in January, below the CBI’s target of 2.5 percent.
In its February bulletin, the central bank forecast average consumer price inflation of 2.3 percent this year, up from 1.6 percent in 2015 as the margin of spare capacity evaporated. For 2017 the central bank forecasts inflation of 4.1 percent and for 2018 inflation of 3.4 percent.
After losing about half its value during the global financial crises, Iceland’s krona has appreciated in the last 12 months. The krona was trading at 126.7 to the U.S. dollar today, up 2.4 percent since the start of this year.
Iceland’s economy grew by an estimated 4.0 percent in 2015, in line with the central bank’s February estimate of 4.1 percent, and data this year suggest that the outlook is broadly unchanged and Gross Domestic Product growth will be robust.
The CBI has forecast GDP growth of 4.2 percent this year with private consumption rising by 5.3 percent, up from 4.9 percent in 2015.
The Central Bank of Iceland issued the following statement: