Iceland has lowered its key interest rate by one point to 17%, the country's first rate cut since the spectacular collapse of its banking sector six months ago.
The Central Bank of Iceland said inflationary pressures had eased due to falling demand and employment, while the country's currency, the krona, had stabilised.
The bank had held its rate unchanged at 18% since October 28, when the North Atlantic island found itself in the throes of an economic meltdown, as the government seized control of the country's three leading banks due to the global liquidity crisis.
'The flexibility of the Icelandic economy has enabled a rapid adjustment of domestic demand, real wages and the trade balance. A large trade deficit has turned to a significant surplus,' the central bank said.
Iceland, a country of 320,000 people that is not a member of the EU, had enjoyed a decade of prosperity thanks to its robust and aggressive banks.
But the collapse of the oversized financial sector was a major economic blow, and outraged the general public with many people losing their jobs and some of their savings as the Icelandic currency lost more than half of its value.
