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COPENHAGEN, March 18 (Reuters) - Iceland’s central bank on Wednesday cut its key interest rate for the second time in a week to 1.75% and released banks’ emergency capital buffer to ease its monetary stance due to the spread of the coronavirus and its impact on the economy.
The 50-basis-point cut to the benchmark deposit rate is the third rate cut this year, and it follows five rate reductions last year as tourism struggled and the fishing season failed.
“The domestic economy and financial system are both well prepared to face shocks,” the central bank said in a statement and added it was prepared to use any policy tool available to mitigate adverse impacts on the economy.
The central bank also said it had decided to reduce the so-called countercyclical capital buffer for banks to 0% from 2% previously.
The buffer, which the bank said would remain unchanged for two years, is designed to help financial institutions with their liquidity and lending-power in difficult economic times.
“Lifting the countercyclical capital buffer requirement will make it easier for the banking system to support households and businesses by increasing flexibility for new lending,” the bank said.
Iceland, which has shut down schools and universities and restricted public gatherings, has 199 confirmed cases of infections with coronavirus. (Reporting by Stine Jacobsen and Nikolaj Skydsgaard; Editing by Toby Chopra)
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