Iceland's central bank kept its benchmark interest rate unchanged for the third successive session, citing increasing inflation pressures and the strong appreciation of the króna.
The Monetary Policy Committee of the Sedlabanki held the key policy rate, which is the seven-day collateralized lending rate, at 6 percent for the third straight session. The decision was in line with expectations. The rate was last hiked by 25 basis points in November.
The monetary policy committee noted that the outlook is still for a gradual economic recovery, and leading indicators from the labor market are consistent with that prospect.
If inflation declines more slowly than was previously forecast, it will be necessary to reduce the monetary slack sooner than would otherwise be required. It is still the case that as spare capacity disappears from the economy, it is necessary that monetary policy slack should disappear as well, the central bank said.
Iceland's annual inflation accelerated to an eight-month high of 4.8 percent in February from 4.2 percent in January. Inflation, excluding housing costs, was 5.6 percent.
The economy expanded at a slower pace of 1.4 percent in the fourth quarter than the 2.2 percent in the third quarter. For the year 2012, GDP increased 1.6 percent, after growing 2.9 percent expansion in the previous year.
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