Iraq cuts interest rate to 15% to shield economy

BAGHDAD (Reuters) - Iraq's central bank cut interest rates by 1 percentage point to 15 percent on Monday, aiming to help to insulate the economy from the global financial crisis, the bank said in statement.

"Due to the global financial crisis and seeking to prevent any potential consequences for the Iraqi economy ... the Iraqi central bank reaffirms the importance of boosting bank credit activity to support real growth in Iraq," it said.

The last time the bank changed its policy rate was in July this year, when it cut it to 16 percent from 17.5 percent.

"To achieve the finance needed to push forward economic growth ... the Iraqi central bank decided to cut rates to 15 percent from 16 percent, starting from November 3rd," the statement said.

Central bank governor Sinan al-Shibibi told Reuters in an interview on Saturday that slowing economic growth caused by lower oil revenues was a bigger concern for the bank than high inflation, and that monetary policy was leaning toward easing.

In September, the International Monetary Fund forecast the Iraq would grow 9 percent in 2008, but as gloom gathers over the global economy, this could be harder for the country's heavily oil-dependent economy to meet.

Falling oil prices have prompted the government to slash its planned budget for 2009 from $80 billion to $67 billion.

But the central bank statement added that inflation remained a concern for Iraq.

"After the rise of annual core inflation in Iraq in September to about 12.9 percent, from 12 percent in August, the central bank would like to highlight that the country is still affected by the external price shock, especially food prices."

Shibibi has said he is aiming for a 10 percent underlying inflation rate.

Inflation has fallen sharply since the chaotic days of 2006, when war and instability caused prices to rise by over 60 percent, enabling the bank to be more dovish.

(Reporting by Ahmed Rasheed; Writing by Tim Cocks; editing by David Stamp)