. investment cycle is expected to be further strengthened by the continuation of the productive fiscal investments. as the external demand is envisaged to recover further, additional stimuli is expected through this channel. the above mentioned growth factors are expected to strengthen further the labor market and the disposable income of the households, hence boosting the private consumption as well. the growth expectations provide room for additional rise of the deposit potential in the banking system, which accompanied with the rise in the credit demand and the willingness of the banks to lend, should enable credit growth at a rate of 9 – 10 % in the period to come. the inflation is expected to be influenced mainly by the global prices of primary commodities and the consumers prices of our main trading partners. an average inflation of 0. 5 % is expected for 2015, with the current forecast indicating its reversal to 2 % in 2016, reflecting the rise in the demand and in the import prices. the structural improvements in the export sector are expected to continue in 2015, which along with the overall external recovery and the much lower oil prices, are envisaged to bring about a moderate current bis central bankers ’ speeches account deficit of bellow 1. 6 % of gdp. in the following year, widening to 3 % is expected, reflecting the fall in private transfers and import pressures from the new investment. the external financing needs, within the current scenario, are expected to be covered by further inflows of foreign direct investments and by the public borrowing for infrastructure purposes. the current forecast points to a rather stable external debt to gdp ratio. no major pressures are foreseen in the following two years on foreign reserves, and they are to be maintained at the adequate level. risks surrounding this baseline macroeconomic scenario should not be neglected. for us, as a small an open economy, they mostly come from the external environment and our main trading and financial partners. although with the latest monetary easing of the ecb the downside risks to the euro zone growth are less pronounced, and in general the global growth risks are more balanced, they are still present and if being materialized, could impact the economy. additional source of risks are the sharp and sudden swings in the primary commodities prices, which for country like ours, can change the envisaged economic profile to a large extent. a new, additional source of risks is the current domestic political context, which can harm the economy, if not being tackled swiftly. of course, the risks are challenging and are to be closely

broadly speaking have only one instrument, i. e. interest rates, and can therefore only achieve a single long - term macroeconomic goal, it is natural to set price stability as the ultimate monetary goal. this is not to say that price stability is a more important goal than, say, full employment, but simply that monetary policy instruments are inherently better suited to impacting prices. it is pointless to set objectives for monetary policy which it cannot achieve. through price stability, a forward - orientated monetary policy can contribute towards creating a stable economic environment on which the long - term growth potential of the economy is based. from the above it is clear that the central bank ’ s main task is to achieve the inflation target, and this is what it aims to do. there have been vocal calls recently for the central bank to ease its monetary stance in order to soften or even prevent a looming economic contraction. the growth outlook has an impact on the output gap, i. e. the deviation in demand from a level which is consistent with balanced supply and demand for domestic goods and factors of production. the output gap is subsequently one of the factors that play a key role in the inflation cycle. all things being equal, the growth outlook thus exerts an influence on monetary policy, namely the worse the outlook, the lower the interest rate, and the contrary. for as long as inflation remains at its present high level, however, it is unavoidable to allow the output gap to shrink sufficiently and the central bank cannot apply its instruments at this stage to prevent that happening. high interest rates are counter - inflationary the central bank has held the view that, until clear signs emerge that its august inflation forecast will hold good, it is still not safe to lower interest rates. impulsive action could entail a risk that inflation will magnify even further, with very dire consequences for households, businesses and economic growth conditions. claims have also been heard that iceland ’ s high interest rates are inflationary rather than counter - inflationary. the central bank does not agree with this view, which cannot be supported with economic theories, studies or research. on the contrary, there is every indication that interest rates have a similar effect in iceland to that elsewhere. the icelandic economy was showing signs of strong overheating which apparently peaked last year. it is beyond doubt that the tight monetary stance made a major contribution towards cooling the economy. and such a winding down was necessary, too, since great macroeconomic