Iceland cuts interest rates by 25 basis points

Iceland's central bank on Wednesday decided to lower the bank's interest rates by 0.25 percentage points.

In line with the decision, the central bank's key interest rate -- the rate on seven-day term deposits -- will therefore be 5 percent, the central bank said in a statement.

The national accounts for the first nine months of the year show stronger GDP growth than its forecast in November, according to the statement.

Growth in domestic demand was broadly in line with the bank's forecast in November, but its composition was different -- business investment growth was stronger than projected, while private consumption growth was weaker.

Export growth was also stronger than forecast, mainly due to robust services exports, according to the statement.

The current account balance showed a record surplus in the third quarter of the year, the central bank said.

Inflation measured 2.1 percent in November and has remained below target for nearly three years despite large pay increases and rapid demand growth.

This is due largely to favorable external conditions and the appreciation of the krona but also to a tight monetary stance, which has anchored inflation expectations, the central bank said. Endit