Iceland's central bank on Wednesday held interest rates unchanged for the fourth session in a row.
The Sedlabanki left the seven-day collateralised lending rate unchanged at 6.00 percent, in line with economists' expectations.
In a statement, the bank said inflation is likely to reach the target earlier than previously anticipated, with weaker output growth and a stronger krona offsetting larger wage increases and weaker productivity growth.
"Uncertainty about near-term exchange rate developments could contribute to more persistent inflation expectations, however, and slow down the disinflation process following this year's appreciation of the krona," the bank said.
"The MPC is of the opinion that these conditions create the premises for increased Central Bank activity in the foreign exchange market in the near future, with the aim of reducing exchange rate fluctuation vis-à-vis recent levels of the exchange rate."
Further, the bank said it will try to increase its non-borrowed reserves, which is a long-term goal, based on the strength of the krona as well as the movements in the exchange rate.
In its latest monetary bulletin released today, the central bank also cut the growth forecast for this year to 1.8 percent from 2.3 percent seen in February. The growth projection for 2014 was lowered to 3 percent from 3.7 percent.
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