## Iceland: Staff Report for the 2006 Article IV Consultation

_IMF Staff Country Reports, August 8, 2006_

## Source details

**Canonical URL:** [Iceland: Staff Report for the 2006 Article IV Consultation](https://www.imf.org/en/publications/cr/issues/2016/12/31/iceland-staff-report-for-the-2006-article-iv-consultation-19527)

## Other formats

- [Markdown version](/en/publications/cr/issues/2016/12/31/iceland-staff-report-for-the-2006-article-iv-consultation-19527/index.md)
- [Structured JSON version](/en/publications/cr/issues/2016/12/31/iceland-staff-report-for-the-2006-article-iv-consultation-19527/index.json)
- [Bundle manifest](/en/publications/cr/issues/2016/12/31/iceland-staff-report-for-the-2006-article-iv-consultation-19527/bundle-manifest.json)

## Bibliographic details
- Published: August 8, 2006
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781451819328.002

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### Major findings
- Over the last three years, a rapid expansion in domestic demand has dramatically widened the current account deficit in Iceland.
- Demand expanded faster than supply, and evidence of overheating is widespread.
- Monetary policy has tightened, but, until recently, the impact has been channeled primarily through the exchange rate.
- Despite hikes in the policy rate, increased competition in the mortgage market eased household credit conditions, and household indebtedness has surged.
- The financial market turbulence early in the year ended the favorable conditions that had allowed banks to fund rapid balance sheet growth.

### Financial sector developments
- Rapid bank balance sheet growth was supported by favorable funding conditions that ended with financial market turbulence early in the year.
- Increased competition in the mortgage market mitigated the transmission of higher policy rates to household credit conditions.

### Policy implications and priorities
- Tightening monetary policy has relied heavily on exchange-rate effects; attention to alternative channels of policy transmission may be warranted given eased household credit conditions.
- Addressing surging household indebtedness is a priority given the combination of increased mortgage competition and rising policy rates.
- Financial sector stability considerations are central after the end of favorable external funding conditions for banks.

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## Content in this bundle

- **_cr06296 - Executive Summary and Selected Sections**
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  - [_cr06296 - Executive Summary and Selected Sections (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2006/_cr06296.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/cr/issues/2016/12/31/iceland-staff-report-for-the-2006-article-iv-consultation-19527_