Lowest Iceland interest rates in six years

The Central Bank of Iceland yesterday lowered its interest rate to its lowest level in six years. The one percent drop to seven percent was bigger than any in recent months.

Central Bank of Iceland governor Mar Gudmundsson told reporters that the bank will begin regular currency purchases on the 31 August to strengthen its reserves.

He said at the press conference that inflation has been subsiding at a faster rate than predicted and the newest prediction is that it will fall to the Central Bank’s target level of 2.5 percent around the middle of next year.

He said that the economic news coming out of Iceland at the moment is generally positive; but added that interest rates are still a little high compared to the inflation outlook and the currency exchange restrictions and the recent decision of the Supreme Court on foreign currency indexed loans both add an element of uncertainty.