By CentralBankNews.info

Iceland’s central bank cut its interest rates for the 4th time in a row, saying the economy could weaken more rapidly than it expects due to the uncertain outlook, particularly for the global economy.

The Central Bank of Iceland (CBI) cut the rate on its benchmark 7-day deposits by another 25 basis points to 3.25 percent and has now cut it by 125 points this year following cuts in May, June and August.

CBI said recent data shows economic activity has been stronger than assumed and growth was a bit stronger than projected in the August monetary bulletin, but this was mainly due to a shift in demand toward domestic production, partly offsetting the decline in exports.

“Leading indicators imply that economic activity will continue to slow, although there are signs that the economy may be regaining a foothold,” CBI said.

In its latest forecast from August, CBI lowered its projection for economic growth in 2020 to 1.9 percent from an earlier forecast of 2.4 percent and revised its forecast for growth this year for a contraction of  0.2 percent, up from the May forecast of a 0.4 percent contraction.

Iceland’s gross domestic product grew by an annual 2.7 percent in the second quarter of the year, rebounding from contraction of 0.9 percent in the first quarter.

By 2021 CBI expects the economy to rebound and expand by 2.7 percent, helped by stronger domestic demand, including a 6.6 percent rise in public investment.

After a severe recession in the wake of the global financial crises, tourism helped launch a boom in Iceland, which the economy growing 4.6 percent in 2017 and 2018.

Iceland is now facing a series of challengers after tourism began to decline, the budget airline WOW collapsed, uncertainty surrounds Icelandair’s grounded Boeing 737 MAX aircraft, the Icelandic krona has been high, and exports were hit by the collapse of the fishing of capelin due to rising ocean temperatures.

Iceland’s headline inflation rate eased to 3.0 percent in September from 3.2 percent in August and CBI said it expects it to ease faster than assumed in August while the krona has appreciated, leading to a slight tightening of the monetary policy stance.

In August CBI forecast consumer price inflation would average 3.1 this year and then decelerate to 2.4 percent in 2020 and 2.2 percent in 2021, below the bank’s 2.5 percent target.

The Central Bank of Iceland issued the following statement: