(Adds quotes, background)
COPENHAGEN Dec 14 Iceland's central bank cut
its main interest rate to 5.0 percent from 5.25 percent on
Wednesday, its first cut since August, in a bid to weaken its
The crown's exchange rate has risen by 1.5 percent since the
the bank's Monetary Policy Committee met in November and is
already above the projected average for 2017.
The central bank said that inflation expectations now appear
more firmly anchored to the 2.5 percent target than before.
"This gives the MPC some scope to lower nominal interest
rates now," it said in a statement.
Inflation measured 2.1 percent in November and has remained
below target for nearly three years despite large rises in wages
and rapid growth in demand, it said.
The central bank also said that the composition of GDP
growth was more favourable than was forecast in November, in
that exports and business investment featured more heavily.
It voiced concerns, however, over the the job market and the
country's steps towards removing the capital controls it imposed
in the wake of a financial crisis in 2008.
"As in November, there is unrest in the labour market and
uncertainty about the impact of upcoming steps towards capital
(Reporting by Teis Jensen, editing by Annabella Nielsen and