2019.08.2806:45:00UTC+00Iceland Cuts Key Rate For Third Time To Revive Economy

Iceland's central bank lowered its key interest rate for the third consecutive meeting to lift the economy out of a slowdown.

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 3.5 percent.

The bank had reduced the rate by 50 basis points in May and by 25 basis points in June.

"Near-term monetary policy decisions will depend on the interaction between developments in economic activity, on the one hand, and inflation and inflation expectations, on the other," the bank said.

The central bank said the economic contraction forecast was slightly better than the forecast released in May and inflation is expected to subside faster than estimated and align with the target in the first half of 2020.

The bank forecast GDP to shrink only 0.2 percent this year as resilient private consumption growth and foreign trade partially offset the stronger contraction in tourism.

However, the GDP growth outlook for 2020 deteriorated as it appears that it will take longer for tourism to recover after this year's setbacks, the bank said.

The krona appreciated over 2 percent since the last meeting and the foreign exchange market remains well balanced, the bank added.

Policymakers observed that inflation expectations have fallen back to target since the MPC's last meeting, and the monetary stance therefore tightened slightly.