UPDATE 1-Iceland central bank holds rates, flags hikes
(Adds central bank comment, background)
STOCKHOLM Oct 2 (Reuters) - Iceland's central bank left its key interest rate unchanged at 6.00 percent on Wednesday, but signalled borrowing costs were likely to rise if wages increased as forecast.
The Sedlabanki has kept its key rate on hold since raising it to 6.0 percent from 5.75 percent in November last year, seeking to bring down inflation without impacting a sluggish economy.
The annual inflation rate was 3.9 percent in September, far above Sedlabanki's target of 2.5 percent, and the central bank said rates would have to rise if wage settlements added to those pressures.
"If wage increases are in line with the forecast, it will probably be necessary to raise the bank's nominal interest rates, other things being equal," the bank said in a statement.
"If wages rise in excess of the forecast, it is even more likely that the bank will raise interest rates."
Iceland is slowly recovering from its worst financial crisis which led to a spate of bank failures in 2008 and led to the imposition of controls to prevent outflows of capital.
The central bank said uncertainty about the settlement of the failed banks' estates, and future exchange rate developments as capital controls are phased out meant that inflation expectations remained high.
"The accommodative monetary stance has supported the economic recovery in the recent term," the central bank said.
"It is still the case that as spare capacity disappears from the economy, it is necessary that (the) slack in monetary policy should disappear as well." (Reporting by Sven Nordenstam; Editing by John Stonestreet)
- North Korea says Kim's powerful uncle dismissed for 'criminal acts'
- Thai PM calls snap election, protesters want power now |
- Protesters fell Lenin statue, tell Ukraine's president 'you're next'
- Storm pushes up U.S. East Coast after deep-freeze in the South
- Venezuela's Maduro to raise pressure on business after local vote