Iceland Cuts Key Interest Rate For Fourth Time

Iceland’s central bank cut its key interest rate in October for the fourth successive rate-setting session, as growth continued to ease amid slowing inflation and uncertain economic outlook.

The Monetary Policy Committee of the Central Bank of Iceland, on Wednesday, decided to lower the key interest rate by 0.25 percentage points to a record low 3.25 percent.

Economic activity has been better than expected, but the outlook remains uncertain, particular for the global economy.

Hence, domestic economic growth could slow rapidly than is expected now, the bank said. That said, there are signs that the economy may rebound.

Modest tightening in the monetary stance has led to the appreciation of the krona and inflation expectations have fallen since the last policy meeting.
Capital Economics expect the central bank to remain in easing mode over the coming months and reduce the rate to 2.75 percent by year-end.

“The accompanying statement to today’s decision was more balanced than the overtly-dovish message that was delivered after the previous meeting, on 28th August,” Capital Economics economist David Oxley said.

“All told, we now suspect that the CBI will cut interest rates by a further 25bp at the two remaining policy meetings this year, on 6th November and 11th December, which will take rates to a fresh all-time record low of 2.75 percent,” the economist added.

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