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Iceland Central Bank Holds Key Rate Steady For Second Time

Iceland's central left its key interest rate unchanged on Wednesday for a second policy session in a row after hiking it in November.

The Monetary Policy Committee decided to keep the key interest rate - the rate on seven-day term deposits - unchanged at 4.5 percent, the Sedlabanki said in a statement.

The central bank had raised the rate by 25 basis points in November, which was the first hike in over a year.

In its February Monetary Bulletin, released on Wednesday, the bank trimmed the GDP forecast for this year to 1.8 percent, which would be the weakest expansion since 2012.

The slowdown in growth is due in particular to a contraction in tourism, the bank said, adding that the outlook is for the positive output gap to narrow faster than previously assumed.

Inflation is expected to pick up this year and remain above the target of 2.5 percent until the second half of 2020.

Saying that it has the will and the tools necessary to keep inflation and inflation expectations at target, the bank said this could call for a tighter monetary stance in coming months.

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