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Iceland's C.Bank Holds Rates Steady; Signals Hike In Near-Term

2/8/2012 4:16 AM ET

Iceland's central bank on Wednesday decided to leave the main interest rate unchanged for a second consecutive time, but signaled that it may increase rates in the near-term in the absence of an improvement in inflation outlook.

The benchmark 7-day collateralized lending rate was kept unchanged at 4.75 percent. The overnight lending rate stood at 5.75 percent and the interest rate on current account remained at 3.75 percent.

"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," the bank said in a statement.

The bank said inflation may subside at a slightly slower pace over the course of 2012 and will remain above the Bank's inflation target for somewhat longer than was projected in November.

According to official data, inflation quickened to 6.5 percent in January from 5.3 percent in December. In November, the rate of inflation was 5.2 percent.

Iceland economy expanded 4.7 percent quarter-on-quarter in the third quarter, rebounding from a 3.6 percent contraction in the second quarter.

by RTT Staff Writer

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