Central Bank of Iceland Annual General Meeting

"Honourable President. I intend to discuss the economic issues here. Yesterday was the annual meeting of the Central Bank of Iceland, and very significant and decisive matters for the nation’s economy emerge when we look to the near future and the developments in these matters. Certainly, there are bright times ahead, but it is also challenging.

In the speeches of the Honourable Minister of Finance and the Governor of the Central Bank, it was noted that following the foreign exchange auction, it would be possible to relatively quickly start lifting restrictions on domestic entities. This is extremely important and should be welcomed.

Many other interesting points were raised at that meeting, Honourable President. The Governor of the Central Bank announced measures to respond to excessive inflow of capital due to interest rate differential trading, tools in the form of reserve requirements or taxes that should be activated here when the restrictions are lifted, which are not unnecessary and are an important monetary stability tool to guard against inflation and macroeconomic imbalance.

However, one wonders whether lower interest rates would not concurrently work towards the same goal and also benefit households and businesses. The response from the Central Bank is quite clear: It would stimulate demand here and increase private consumption and expansion.

I do not believe that with this influx in the form of interest rate differential trading, which is costly and can threaten the exchange rates of export industries and financial stability, we cannot achieve the same objectives with a lower interest rate combined with the financial flow tools that I point out are an important addition to the arsenal and give us increased chances of achieving balance and maintaining the price stability that has been present here.

The task ahead is disciplined monetary and fiscal management.”

Willum Þór Þórsson in parliamentary activities on 18 March 2016.