Iceland cut key interest rate to 5.75%

Noam Stiekema

Central Bank of Iceland cut key interest rate. This happens for the first time since the beginning of 2011, after foreign exchange intervention and the krona appreciated lowered inflation. Sedlabanki slashed the key interest rate by 25 percentage points to 5.75% from 6.00%. Last amended bank rate in November 2012 when the end of the […]

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SedblankiCentral Bank of Iceland cut key interest rate. This happens for the first time since the beginning of 2011, after foreign exchange intervention and the krona appreciated lowered inflation. Sedlabanki slashed the key interest rate by 25 percentage points to 5.75% from 6.00%. Last amended bank rate in November 2012 when the end of the cycle of six consecutive increases.

“Nominal interest rates were not changed for two years, but real interest rates rose by more than expected, due to a sharp decline in inflation and inflation expectations”, states the opinion of the financial institution.

Central bankers justify its decision and the current business cycle and the economic outlook in the short term. The move followed the growth and real interest rates. The Central Bank of Iceland joins the Bank of Sweden and the European Central Bank, which lowered interest rates to stimulate inflation. Authorities in Reykjavik last year you started to intervene in the foreign exchange market in order to provide support for crowns and reduce imports.

By the Central Bank of Iceland reported that operations aimed at the exchange rate will continue as needed to keep the volatility of the local currency. The island is trying to eliminate and control the capital, which has been in force since the financial crisis in 2008. The financial institution has cut its assessment of the country’s economic growth to 2.9% in 2014 from the original 3.4% and 3.5% from 3.9% in 2015 is projected that this year inflation will be 2.2%, and the next – 2.6%. In October, inflation was 1.9%, down from those reported in January 2012 was 6.5%. The purpose of the bank is an annual inflation rate of 2.5%.

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