The Monetary Policy Committee (MPC) has voted to lower Central Bank interest rates by 0.5 percentage points. The deposit rate (current account rate) will be lowered to 8%. The maximum bid rate for 28-day certificates of deposit (CDs) will be 9.25%. The seven-day collateral lending rate will be 9.5% and the overnight lending rate 11%. (Central Bank press release)
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We have not read news about inflation in January 2010 here.
Consumer price index, YoY, January 2010: 6,6%
The CPI based on prices in January 2010 is 356,8 points, 0,31% lower than in the previous month.
The CPI in January 2010 is 6,6% higher than in January 2009 while the CPI less housing cost is 10,9% higher than one year ago.
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My forecast (Nov 5th 2009) for three months (Nov-Dec-January 2010) has not been bad. Only hours later, some ‘friend’ said “your forecast is obsolete”. Or, 3 weeks ago, “learn to spell before you start discussing other countries economies mate” : Neither my forecast was/is obsolete – how are you, Gus? -, quite the opposite, nor I must learn to spell – Merry Christmas, Runar! -.
I challenge to you, on next 48 hours, to write here the forecast about inflation and policy rate in Iceland on next three months (February, March and April 2010)
My forecast on November 5th 2009 said:
“Good decision the one to cut policy rate 1% today, to 11%. YoY inflation will drop quickly on next 2-3 months and, it will give option to new cuts of policy rate.
My forecast:
November 2009: YoY inflation 8,2 – 8,6 ( ICB could cut policy rate in December, to 10%-10,5% ).
December 2009: YoY inflation 7,1 – 7,5 ( ICB could cut policy rate in January, to 9%-9,5% ).
January 2010: YoY inflation 6,5 – 6,9 ( ICB could cut policy rate in February, to 8,75%-9% ) .
No more than 185 Krona to Euro.”
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REALITY:
November, inflation: 8,6% /// Policy rate December, 10%
December, inflation: 7,5% /// Policy rate January, 9,5%
January, inflation: 6,6% /// Policy rate February -) March, ? (I would cut to 9%)
Icelanders need wise men; Icelandic monetary policy needs thorough knowledge: Runar, where are you???!!! ICB is looking for you!
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ICESAVE uncertainty could ruin stabilization of the macroeconomic policy. Iceland – the Icelanders – cannot and mustn’t be strangled: ICESAVE agreement would strangle the icelandic economy. They must pay but, they must look for a new agreement!
Not only a country has mafia and rogues; each country has its own mafia and rogues!!
The Icelandic government is going to restart issuing index linked (to inflation) bonds later this year. That could end up expensive, but necessary.
When it gets below 5.5%, Icelanders will be able to crticise the Icesave deal. Until that time the Icelandic government is still making a whopping profit by borrowing money at 5.5% amd lending it out again for at least 4% more.
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