Iceland's Central Bank Cuts Rates on Strong Króna

By Nina Adam Features Dow Jones Newswires

Iceland's central bank on Wednesday cut its key interest rate by another 0.25 percentage points, as a firming national currency continued to weigh on the island's inflation outlook.

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Sedlabanki Islands lowered the interest rate on seven-day term deposits to 4.5% from 4.75%. The decision, which marks the second rate cut in about four weeks, comes despite a strong domestic economy and prospects of considerable fiscal easing.

"A stronger anchor for inflation expectations at target and the appreciation of the króna have enabled the Monetary Policy Committee to achieve its legally mandated price stability objective with a lower interest rate than would otherwise have been possible," the central bank said.

In a global context, the decision is unusual, because most developed-country central banks are not currently contemplating rate cuts or other forms of additional stimulus.

On the contrary, the U.S. Federal Reserve has embarked on a series of interest rate rises and others are expected to follow later this year and during 2018--if the global economy continues to grow, as expected.

Iceland's economy has performed strongly in recent years, led by booming tourism. And the central bank in May raised its economic growth forecast for 2017 to 6.3% from 5.3%, citing better exports and the prospect of more fiscal easing.

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Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

June 14, 2017 06:05 ET (10:05 GMT)