Iceland lowers key interest rate to 11 pct

Iceland's central bank cuts official interest rate by a percentage point to 11 percent

• On 6:46 am EST, Thursday November 5, 2009

LONDON (AP) -- Iceland's central bank on Thursday lowered its official interest rate by a full point to 11 percent as the country tries to get back on its feet after the credit crisis toppled its overweight banking system last year.

The official rate had peaked at 18 percent between October 2008 and mid-March of this year, and had been left at 12 percent since June.

"Provided that the krona remains stable or appreciates and inflation continues to fall as forecast, conditions for further easing of monetary policy should soon be in place," the central bank's monetary policy committee (MPC) said, adding that it intends to move cautiously.

"The disinflation process has been slower than anticipated, in large part because the krona has been weaker than previously forecast," the MPC said.

Annual inflation has declined to 9.7 percent in October, and is expected to fall sharply next year, it said.

"Because inflation is now driven primarily by exchange rate movements, with a small contribution from wage costs and a negative contribution from housing costs, a faster recovery of the krona than is assumed in the forecast would bring inflation down significantly more swiftly than projected," the MPC said.

Sedlabanki (central bank), http://www.sedlabanki.is/

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