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COPENHAGEN, Dec 14 (Reuters) - Iceland’s central bank cut its main interest rate to 5.0 percent from 5.25 percent on Wednesday, its first cut since August, in a bid to weaken its crown currency.
The crown’s exchange rate has risen by 1.5 percent since the the bank’s Monetary Policy Committee met in November and is already above the projected average for 2017.
The central bank said that inflation expectations now appear more firmly anchored to the 2.5 percent target than before.
“This gives the MPC some scope to lower nominal interest rates now,” it said in a statement.
Inflation measured 2.1 percent in November and has remained below target for nearly three years despite large rises in wages and rapid growth in demand, it said.
The central bank also said that the composition of GDP growth was more favourable than was forecast in November, in that exports and business investment featured more heavily.
It voiced concerns, however, over the the job market and the country’s steps towards removing the capital controls it imposed in the wake of a financial crisis in 2008.
“As in November, there is unrest in the labour market and uncertainty about the impact of upcoming steps towards capital account liberalisation”. (Reporting by Teis Jensen, editing by Annabella Nielsen and Hugh Lawson)
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