Iceland’s central bank on Wednesday cut its key deposit interest rate to 5.25 per cent from 5.75 per cent as monetary policy had been more successful than expected earlier this year, the central bank said.
“As a result, it appears that it will be possible to keep inflation at target over the medium term with a lower interest rate than was previously considered necessary,” the central bank said in a statement.
Ahead of the monetary meeting analysts at Islandsbanki expected unchanged interest rates. It is the first time since November 2014 that the Icelandic central bank has cut the key deposit rate, which is now at its lowest level since August last year.
Capital controls
Last week, Iceland’s government proposed major steps aiming to remove capital controls introduced after the 2008 financial crisis, including allowing residents to buy real estate abroad and purchase foreign currency for international trips.
The likelihood of increased macroeconomic imbalances and the uncertainty associated with capital controls argue for caution in interest rate setting, the central bank said. "Whether interest rates will be lowered further or need to be raised again will depend on economic developments and on the success of the capital account liberalisation process," it wrote. – (Reuters)
