Central Bank of Iceland » Central Bank of Iceland

Laws, rules and agreements

In May 2001, a new Act on the Central Bank of Iceland entered into force. In February 26, 2009 the Act was amended by Act no. 5/2009. The main elements of the new Act are as follows:

The main objective of monetary policy is to maintain price stability. With the approval of the Prime Minister, the Bank is authorised to adopt an inflation target as a framework for the conduct of monetary policy. An inflation target had been adopted on March 27, 2001 through a joint declaration of the Government and the Central Bank. By law, the Bank shall also promote other objectives, such as an efficient and safe financial system, including payments systems, and other tasks consistent with its role as a central bank. The Bank shall support the economic policy of the Government as long as it does not deem it inconsistent with the objective of price stability. The Act thus gives instrument independence to the Central Bank. The de facto ban on credit to the public sector that has been in force since the early 1990's becomes law with the new Act. Exchange rate policy is decided by the Central Bank, subject to the approval of the Prime Minister, but it has to be consistent with the main monetary policy objective of price stability. A lender of last resort function is provided for.

Monetary policy decision-making authority is vested in a Monetary Policy Committee. The Prime Minister appoints the Governor and Deputy Governor of the Central Bank for a five-year term.

The Bank is obliged to issue an annual report detailing its activities and quarterly reports on monetary developments and policy and monetary measures.

The Supervisory Board supervises the activities of the Bank and must approve various rules which are issued by the Governor. The Supervisory Board also has to approve the operating budget for the Bank at the beginning of each year.
The Bank was relieved of expenditure obligations which more appropriately belong in the fiscal budget.
The Act provides for a buildup of the Bank's capital and reserves. When they are below a certain level defined in the bill, the Bank shall pay a third of its annual profit to the Treasury. Once they have reached the stipulated level, two-thirds of the profit shall be paid to the Treasury.

In sum, the Bank was granted instrument independence, its financial independence is better ensured and the legal demands on transparency and accountability are strengthened.

The n Act from May 2001 is explained further in Monetary Bulletin 2001/3.

Consumer prices, 12-month changes. Last value: 4.5%

Inflation target 2.5%

CBI's interest rates
Overnight	8.50%
Loans against collateral	7.00%
Current account	5.50%

Currency	7.9.2010	Ch. *
USD	118.24	0.78%
GBP	181.75	0.85%
DKK	20.25	-0.22%
EUR	150.74	-0.24%
* Changes from last entry

Exchange Rate Indices	9/7/2010	Ch. *
Narrow trade index**	204.9	0.08%
* Changes from last entry
** The index has been recalculated so that, on January 2, 2009, it was assigned a value equivalent to that of the now-discontinued Exchange Rate Index.

07.09.10	REIBID	REIBOR
Penalty rates from 1.9.2010		14.00%
O/N	5.500%	6.000%
S/W	5.500%	6.000%
1 M	5.800%	6.300%
3 M	5.400%	5.900%
1 Y	4.600%	5.100%

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Laws, rules and agreements

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