The CBI announced this morning that the policy rate would be held unchanged. The policy interest rate (or key rate), which is the rate on seven-day term deposits, will therefore remain steady at 0.75%, where it has been since November.
Today’s remarkably brief Monetary Policy Committee (MPC) statement was for the most part a summary of the CBI’s macroeconomic forecast, published this morning in Monetary Bulletin. The statement notes that domestic demand was stronger in 2020 and would continue stronger in 2021 than previously assumed, whereas the outlook for 2021 exports is poorer than previously forecast. Inflation is expected to taper off quickly over the course of the year and reach the bank’s 2.5 inflation target by the year-end, given the slack in the economy and assuming that the ISK appreciates again. The forecast is discussed in more detail below.