Iceland's central bank unexpectedly cut its main policy rate to 5.75%
The central bank of Iceland, Sedlabanki, unexpectedly cut its main policy rate by 25 basis points to 5.75% on Wednesday, its first change in two years, after it lowered its inflation and growth forecasts.
Despite the monetary authority’s focus on the current rate of inflation, which means that interest rates are likely to stay where they are now until the middle of next year, strong domestic demand and labour market tensions mean that it may have to reverse course next year, analysts at Capital Economics said.
It will probably raise it towards around 6.25% by the end of 2015, the think-tank said.