Iceland’s central bank lowered its key rate for the first time since February 2011 as growth is set to be weaker than the previous forecast.
The Monetary Policy Committee of the Central Bank of Iceland cut the key rate by 0.25 percentage point to 5.75 percent. The bank was widely expected leave its rate unchanged at 6.00 percent.
The bank last changed the rate in November 2012 when it was raised by a quarter point.
” The Central Bank’s nominal interest rates have been unchanged for two years, but the Bank’s real rate has risen more than previously anticipated, owing to a more rapid decline in inflation and inflation expectations,” the bank said in a statement today.
“The monetary stance has therefore tightened more than is warranted by the current business cycle position and the near-term outlook,” it said.
The gross domestic product growth forecast for 2014 has been revised downwards since August, to 2.9 percent from 3.4 percent. GDP growth is expected to pick up again in 2015, rising to 3.5 percent.
At the same time, inflation is expected to remain below target, well into next year and then inch upwards. If the forecast materializes, inflation will lie in the 2-3 percent range for the most the forecast horizon, the bank said.