Iceland Central Bank keeps rates on hold at 4.5pc

STOCKHOLM: Iceland's central bank left its key policy rate unchanged at 4.5 percent on Wednesday, but said that in order to contain inflationary pressure it may have to raise rates ahead.

The bank said August inflation was more favourable than expected, allowing it to hold rates unchanged.

But it added that "inflation prospects suggest that, over the medium term, it is appropriate to continue the gradual withdrawal of monetary accommodation begun in August."

"The risk that a modest interest rate hike will derail the economic recovery is low."

The central bank's raised its key seven-day collateralised lending rate to 4.5 percent in August due to inflation worries after standing at 4.25 percent since February this year.

Copyright Reuters, 2011