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The central bank of islands sets a key interest rate to slow down rising inflation in the country. The reason is higher economic growth than expected.
On Wednesday, the central bank in Iceland decided to increase the key interest rate by 0.25 percentage points to 4.5 percent.
The increase in interest rates is the first since November 2015, which illustrates the economic turmoil in the country after the disintegration of the Lehman Brothers Investment Bank and the ensuing financial crisis in 2008.
The Icelandic financial sector almost collapsed after the three largest banks in the country, which together had ten times more assets than the Icelandic GDP, collapsed. In 1976, the United Kingdom became the first western country to receive the so-called "financial assistance" from the International Monetary Fund.
However, the state of ten years after the financial crisis is completely different.
Although the central bank expects the growth to moderate somewhat in the second half of the year, Iceland has an economic growth of 4.4 percent in 2018. This is almost a percentage point more than was predicted in August.
"It is expected that inflation will continue to increase in the coming year and slightly fall above the inflation target," the Central Bank said in a statement.
Inflation in Iceland in October amounted to 2.8 percent. The inflation rate in the country is 2.25 percent, and the central bank says it will intensify in the future.
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