Iceland cuts interest rates again

The Central Bank of Iceland has cut
its key interest rate to 4.5 per cent from 5.5 per cent to help revive the
country’s struggling economy.

The cut is the eighth this year,
and was bigger than analysts had expected.

Iceland’s banks failed in 2008
sparking a spectacular economic collapse, but the economy is now growing again.

Last year, the economy shrank by
6.8 per cent However, figures released showed the economy expanded by 1.2 per
cent in the third quarter.

This was the first growth that
Iceland’s economy has recorded for two years.

Last month, the country’s
Statistics Office said the economy was expected to contract by 3 per cent this
year, with a small expansion of 1.9 per cent forecast for next year.

Mats Olausson, chief strategist for
emerging markets at the banking group SEB, said the central bank had a
difficult balancing act to perform.

“Large parts of the domestic
economy would still need much lower interest rates while at the same time… it
is important for Iceland to have an attractive interest rate for locals and
foreigners.”

At their peak at the end of 2008,
rates were 18 per cent.

The governor of the central bank of
Iceland recently told the BBC that joining the euro could still be a “good
option”, despite the debt crisis.

It opened membership talks with the
European Union earlier this year.

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