Iceland's Central Bank Leaves Key Rate at 4.25% as Economy Slows

Iceland's central bank on Wednesday left its key interest rate unchanged as economic activity in the country is set to slow "significantly" this year and by more than Sedlabanki had projected initially.

"The current monetary stance appears sufficient at present to keep inflation broadly at target," it said.

Sedlabanki has cut the rate on seven-day deposits three times this year, which stands at 4.25%.

Inflation in the Nordic island of about 330,000 people is running well below the bank's 2.5% target, but Sedlabanki forecast that it will align with the target in mid-2018 and stay close to that level in the medium term.

"Whether this turns out to be the case […] will depend on economic developments, including fiscal policy and the results of wage settlements," the central bank said.

The outlook for Iceland's future fiscal stance is uncertain, after a snap election in late October didn't yield a clear winner.

Iceland's government collapsed in mid-September when news spread that the prime minister's father was seeking the rehabilitation of a convicted child molester. Coalition talks are likely to drag on for many weeks, observers say.

Sedlabanki said that the Icelandic economy will likely expand by 3.7% this year, which would mark a sharp slowdown from 7.4% growth in 2016. Export growth is also set to slow after several strong years.

Dominic Chopping contributed to this article.

Write to Nina Adam at nina.adam@wsj.com

(END) Dow Jones Newswires

November 15, 2017 04:56 ET (09:56 GMT)