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Jun 4, 2009, 10:37 GMT

Iceland's central bank lowers interest rate to 12 per cent

Reykjavik - Iceland's central bank on Thursday decided to lower its key interest rate by 1.0 percentage points to 12 per cent, continuing its recent moves to bring down rates. A month ago, the central bank, Sedlabanki, reduced its lending rates to 13.5 per cent. In March, Iceland made its first cut since mid-October when the country was hit by the global credit crunch that saw its three major banks taken over by the state. Unemployment has also surged as a result of the crisis. Interest rates at the end of October were hiked to 18 per cent, and the North Atlantic country in November secured a 2.1-billion- dollar loan from the International Monetary Fund. An IMF delegation recently visited Iceland and indicated it was not opportune to cut rates at the moment but added the decision rested with Sedlabanki. Projections by the IMF, the government and central bank suggest the economy will contract by some 10 per cent this year over weaker exports and investments as well as lower domestic demand.

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