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Iceland cuts rates again in race to beat recession

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Reykjavik: Iceland’s central bank lowered its key interest rate for the third time this year as it battles with recession after a decade of solid growth. The bank cut its benchmark seven-day deposit rate by 0.25 points to 3.5 per cent.


It had already slashed the rate in May, and then again in June.


The bank expects Iceland’s economy to contract by 0.2 per cent this year, less than forecast in the spring, it said.


But at the same time the outlook for next year has worsened as the crucial tourism sector has been slow to recover from a slump.


“The GDP growth outlook for 2020 has deteriorated,” the bank said, “as it now appears that it will take longer for tourism to recover after this year’s setbacks”.


The bank now expects GDP to grow by 1.9 per cent in 2020, compared to its previous 2.4 per cent forecast.


Slowing inflation and a stronger krona have increased the scope for monetary easing without much upward pressure on prices. Analysts at Capital Economics said they expect Iceland to cut rates at least once more this year, with a move likely as early as October.— Reuters


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