Iceland Central Bank Cuts Rates For Third Time

(RTTNews) - The Central Bank of Iceland lowered the key interest rate for a third policy session in a row as policymakers assessed that inflationary pressures continue despite a slowdown in price growth.

The Monetary Policy Committee, led by Governor Asgeir Jonsson, cut the benchmark, which is rate on seven-day term deposits, by 50 basis points to 8.0 percent in a unanimous vote on Wednesday.

The previous change in the key interest rate was a similar reduction in November that followed a quarter-point cut in October.

The central bank expects continued disinflation in coming months. Economic activity is apparently stronger than estimated and wage costs continue to rise, the bank noted.

"Although inflation has eased and inflation expectations have fallen, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward" the bank said. "This is compounded by elevated global economic uncertainty."

The central bank lowered the GDP growth forecast for this year to 1.6 percent in the monetary policy bulletin. This will follow an estimated 0.4 percent contraction last year. Growth is expected to rebound to 2.6 percent next year and 3 percent in 2027.

The inflation forecast for this year was raised to 3.6 percent from 3.4 percent. Similarly, the projection for next year was lifted to 2.7 percent from 2.8 percent. However, the outlook for 2027 was lowered to 2.4 percent from 2.5 percent.