Monetary Policy Committee: Home-grown hawks; imported doves

The external members of the Central Bank (CBI) Monetary Policy Committee (MPC) were somewhat more dovish year than those who come from within the ranks of Bank staff. There was relatively little difference in the various members’ stance, however, as all five were in full agreement concerning the Committee’s last five decisions.

As usual, the CBI’s newly published 2017 Annual Report contains a run-down of individual MPC members’ votes on the policy interest rate. In all instances, the Committee voted unanimously in favour of the Governor’s proposals. However, on two occasions Gylfi Zoëga would have preferred that rates be 0.25 percentage points lower than was ultimately decided, and Katrín Ólafsdóttir agreed with Gylfi on one occasion, although both members decided to vote in favour of Governor Már Guðmundsson’s proposals. The CBI’s Chief Economist, Þórarinn G. Pétursson, who has at times been the most hawkish member of the Committee — i.e., more likely to advocate for higher rates than his fellow MPC members — always agreed with the Governor’s proposals in 2017, as did Deputy Governor Arnór Sighvatsson. 

Strong consensus in the MPC recently

As was the case last year, the MPC’s decisions in 2018 to date have been unanimous. All members have therefore voted in favour of the Governor’s proposal in the past 10 instances, and in the last five, no members even expressed a preference for another outcome. As this shows, there has been a strong consensus in the Committee since the beginning of 2017. 

The MPC lowered the policy rate by a total of 0.75 percentage points last year, to 4.25%, where it has remained since October. We had previously forecast a 25-bp reduction in 2018, but recent developments have made such an outcome less likely.