Peningastefnunar

Peningastefnunar is the Icelandic term for monetary policy, the set of actions used by a country's central bank or government to influence the money supply, interest rates, and inflation. Its primary objective is price stability, typically complemented by considerations of financial stability and sustainable growth. In practice, agents assess macroeconomic conditions and adjust policy tools to keep inflation near a target and preserve financial resilience.

Monetary policy relies on instruments such as the policy interest rate, open market operations, reserve requirements for banks, and macroprudential measures to curb excessive credit growth. In inflation-targeting regimes, the central bank establishes a numerical inflation goal and uses its tools to steer the economy toward that target. Exchange rate considerations may be used in some contexts but are generally subordinated to domestic price stability in small open economies.

In Iceland, monetary policy is conducted by Seðlabanki Íslands, the Central Bank of Iceland. The bank’s Monetary Policy Committee sets the policy rate and uses liquidity operations to influence market conditions. The bank operates with a mandate to maintain price stability and financial stability, while remaining independent of direct political control within the framework of Icelandic law. Transparency is promoted through regular policy statements and economic analyses.

Historical context: The 2008 financial crisis led to a severe depreciation of the krona and a collapse of the banking sector. Iceland pursued an IMF-supported stabilization program, imposed temporary capital controls, and undertook reforms to reestablish credibility in its monetary framework. Since then, the country has aimed to restore inflation targets, normalize policy rates, and strengthen financial regulation.

Impact and discussion: Monetary policy directly affects borrowing costs, household and business investment, and the pace of inflation. Debates often focus on the appropriate policy stance during shocks, the balance between independence and accountability, and the effectiveness of instruments in small economies.