Iceland's Sedlabanki held its seven-day collateral lending rate at 4.50%. The Bank also held the deposit rate at 3.50% and overnight lending rate at 5.50%. The Bank said: "inflation prospects suggest that, over the medium term, it is appropriate to continue the gradual withdrawal of monetary accommodation begun in August. The risk that a modest interest rate hike will derail the economic recovery is low. However, somewhat more favourable than expected inflation figures in August, continued strengthening of the króna, and a weaker outlook for the global economy allow the Committee to keep rates on hold at present."
At its August meeting the Bank increased its lending rate by 25 basis points to 4.50%. Iceland reported headline inflation of 5% in July, up from 4.2% in June, 3.4% in May, and 2.3% in March; inflation had previously been forecast to peak just above 3.0% around the middle of this year, meanwhile the Bank's inflation target is 2.5%. On inflation Sedlabanki said: "in the absence of a significant appreciation of the króna, inflation will remain well above the Bank's inflation target for some time but return to target over the medium term."
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