March 5, 2020 / 10:12 AM / a month ago

UPDATE 1-Iceland's cbank likely to cut key rate on coronavirus impact

(Updates with number of infected, background)

By Nikolaj Skydsgaard

COPENHAGEN, March 5 (Reuters) - Iceland’s central bank is likely to cut its benchmark deposit rate at its next rate meeting this month due to a larger-than-expected contraction in production output because of the coronavirus, the bank’s governor Asgeir Jonsson said.

“This (coronavirus) will mean a larger contraction in output this year than we expected, and it likely means that we need to relax monetary policy,” Asgeir Jonsson told Icelandic newspaper Visir in an article published late on Wednesday.

The central bank confirmed Jonsson’s comments to Reuters.

Jonsson also said the Atlantic economy’s current account surplus and strong balance of payments allowed for a rate cut without weakening the Icelandic krona currency.

As of Wednesday, 26 Icelanders had been infected with the new coronavirus in Iceland, most of them after returning from Northern Italy or Austria, according to Iceland’s Department of Civil Protection and Emergency Management.

The department advises those returning from high-risk areas to self-isolate for 14 days, but said no ban on assembly had been declared by authorities.

Last year, the central bank cut its key rate five times, partly due to a contracting tourism industry and a failed fishing season, and further cut it to a record low of 2.75% in February.

The central bank will hold its next rate decision meeting on March 18.

Reporting by Nikolaj Skydsgaard; editing by Toby Chopra and Philippa Fletcher

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