Country Report Iceland July 1998 Main report

Economic policy: Changes are made to monetary policy instruments

A series of changes in monetary policy instruments (2nd quarter 1998) were implemented between March and May by the Central Bank. The changes were deemed necessary so that the regulatory framework for credit institutions would more closely resemble those of other European Economic Area (EEA) countries. Increased competition in the banking sector was also an objective of the reforms.

Interest rates (%; end-period unless otherwise indicated) 1997 1998 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr(a) Discount rate 6.5 6.5 6.5 6.8 6.8 6.8 90-day Treasury bills 7.1 7.0 6.9 7.2 7.3 7.3 5-year government bonds(b) 9.28 8.64 8.24 8.30 7.57 7.68 Commercial lending rate© 12.8 13.0 12.9 12.9 12.9 12.9 (a) April and May only. (b) Non-indexed bonds (secondary market yields). © Average. Sources: Central Bank of Iceland Monetary Department; IMF, International Financial Statistics.

Despite these changes, the Central Bank has maintained its key short-term rate, the discount rate, at 6.8%. Monetary policy is conducted with the external objective of exchange-rate stability, rather than to control domestic demand, and the Central Bank has not considered a change in the discount rate as being appropriate.

© 1998 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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