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Iceland central bank maintains inflation outlook, keeps key rate on hold

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Iceland central bank maintains inflation outlook, keeps key rate on hold

Iceland's central bank decided to maintain the interest rate on seven-day term deposits at 4.25%.

February's inflation rate came in at 2.3%, down from 2.4% in January. Underlying inflation also fell slightly. The monetary policy committee of Seðlabanki Íslands said that its inflation outlook is broadly unchanged since its last meeting in December 2017 although inflation expectations seem to have risen marginally. The committee said that it is too soon to determine whether inflation expectations have become less firmly anchored to the central bank's inflation target.

The country's statistical agency said that GDP growth at 3.6% in 2017, which is close to the central bank's projection. Export expansion has eased due to a high real exchange rate and the the positive output gap is expected to narrow. The central bank said that a tight monetary stance is necessary to contain rising domestic demand.