Iceland’s election result reduces chance of fiscal boost

At least four parties will be required to form a majority government following Iceland’s election, so coalition negotiations are set to take a number of months. As the left-wing parties performed worse than expected, the most likely outcome appears to be another coalition with the Independence Party at the helm. This suggests that government policy will not be dramatically different to that before the election. So the results do not change our view that monetary policy will be kept unchanged until 2019.