. while recent information on the short - term outlook should obviously be observed, it is even more vital to look at indicators for longer - term developments. in effect the central bank has no other option – like god ’ s mills, the bank ’ s instruments grind slowly, but grind exceedingly well, if patience and foresightedness guide the way. the central bank has made no secret that the current strength of the krona is not sustainable in the long run. an important change this autumn and so far this winter has been large - scale issues of krona - denominated bonds in international markets. in particular, these issues are driven by the wide interest - rate differential between iceland and other developed countries. the current monetary bulletin attempts to analyse the impact of these issues, including a separate article dedicated to this topic. their impact can be positive. for example, it can lead to more efficient foreign exchange and securities markets in iceland, thereby benefiting domestic economic developments. however, the issues can also – at least temporarily – create uncertainty about the transmission of monetary policy and even intensify its impact effect through the exchange rate channel. such a pass - through hits export sectors hard, while doing little to subdue private consumption growth. one standard assumption underlying the inflation forecast published in the current monetary bulletin is that the policy rate will remain unchanged from the day of forecast. on the basis of this scenario, the board of governors decided to raise the policy rate by 0. 25 percentage points. the central bank ’ s monetary policy over the medium term will need to ensure that the exchange rate adjustment which appears inevitable in the long run does not result in a higher rate of inflation than is compatible with the target. a tight monetary stance will be required to do so, for as long as capacity and labour market pressures pose inflationary threats. furthermore, a sufficiently wide interest - rate differential with abroad must be maintained to contribute to a smooth exchange rate adjustment. the surge in house price inflation has reached a peak. if the krona remains relatively strong and stable, goods prices are also quite likely to fall. thus the outlook is for a slowdown in the inflation rate in the coming months, not least because the depreciation of the krona this year has only been passed on to the domestic price level to a limited extent. if the housing market cools more quickly than the central bank forecasts, house price inflation is likely to slow down even more sharply than is currently expected. foreseeable

, tight lending standards would be expected to constrain their demand by more than it would for other homebuyers. indeed, research by federal reserve staff finds that first - time homebuying during the past two years has been quite weak by historical standards, and that this weakness has been particularly pronounced among borrowers with lower credit scores. understanding tight mortgage credit conditions so why is access to mortgage credit so tight? lenders may have tightened credit standards partly as a correction for the lax and problematic lending standards that prevailed in the years leading up to the peak in house prices. and, given the significant consequences that those lax lending standards had for many households, communities, financial institutions, and the economy, some tightening of credit standards is warranted. but it seems likely that other factors are at work as well. constraints on lenders ’ capacity to process loan applications have reportedly been part of the story. since the crisis hit, some lenders have closed their doors, and others have cut back substantially on staff. in addition, a shift to full documentation of income and assets, along with a heightened concern that underwriting mistakes could cause lenders to be forced to repurchase seriously delinquent loans, has lengthened the time required to originate each mortgage. indeed, according to home mortgage disclosure act data, the median time that the sloos is available on the board ’ s website. bis central bankers ’ speeches elapsed between mortgage application and closing increased from about 4 weeks in 2008 to around 6 weeks in 2010. moreover, empirical evidence suggests that lenders might be nearly as capacity - constrained now as during the 2003 refinance boom, even though current mortgage volume is only about one - third of the volume in 2003. but capacity constraints alone are an unsatisfying answer to the question of why access to credit is so tight. it seems reasonable to suppose that if lenders were eager to originate mortgages, they would have an incentive to invest in staff and systems to alleviate these constraints. i believe uncertainty about the future on the part of lenders is inhibiting these investments. the problem of uncertainty just as uncertainty about job prospects or house prices has likely discouraged some potential buyers from purchasing homes, it is likely that uncertainty has also affected mortgage lenders. indeed, uncertainty surrounds several key aspects of mortgage lending : the strength of the economic recovery and the trajectory of future house prices ; the costs and liabilities associated with originating and servicing mortgage loans ; the regulatory environment ; and