Iceland’s central bank cut its key interest rate on Wednesday citing a weakening in the economic outlook due to the resurgence in the [coronavirus][1] or Covid-19 infections.
The Monetary Policy Committee cut the key interest rate, which is the seven-day term deposit rate, by 25 basis points to 0.75 percent, the Central Bank of Iceland said.
The bank forecast an 8.5 percent contraction in GDP growth this year, which a full percentage point more than what was forecast in August.
Inflation is set to average about 3.7 percent until early 2021 and ease there after due to the sizeable slack in the [economy][2], the bank said.
“The MPC will continue to use the tools at its disposal, including Treasury bond purchases by the Central Bank, to support the domestic economy and ensure that the more accommodative monetary stance is transmitted normally to households and businesses,” the bank said.
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