Iceland’s central bank left its key interest rate unchanged for a second policy session in a row, citing stronger than projected economic activity in recent quarters and slowing inflation.
The Monetary Policy Committee decided to keep the key interest rate, which is the rate on seven-day term deposits, unchanged at 0.75 percent, the Central Bank of Iceland said in a statement Wednesday.
The previous change in the rate was a quarter-point reduction in November.
Economic contraction in 2020 was 6.6 percent, which was slower than the 7.7 percent shrinkage that the bank projected in February.
While recent surveys and other indicators suggest a continuing recovery, uncertainty is pronounced, the bank said.
Domestic as well as foreign economic developments will depend on the path of the [coronavirus][1] pandemic and the progress made in vaccination, the bank added.
Effects of last year’s depreciation of the króna still weigh heavily but have probably begun to subside, the bank said.
The currency appreciated recently and inflation slowed in February.
“As a result, the outlook is for inflation to start tapering off this spring, although the near-term outlook has probably deteriorated since February,” the bank said.
Though inflation expectations have risen slightly, the bank said it is too soon to determine whether they have become less firmly anchored to the inflation target of 2.5 percent.
The next policy session is scheduled for May 19.
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