RTTNews - Thursday, minutes from Iceland's central bank showed that the monetary policy committee voted 3-2 to reduce the key interest rate by 2.5 percentage points to 13% on May 7. Two members of the committee favored a more deep reduction of 3 percentage points.

The Committee agreed that cautious yet significant easing of monetary policy would gradually contribute to economic recovery, the minutes showed.

According to the document, the GDP level is forecast to reach a trough in the beginning of 2010, after having fallen 20% from its peak recorded in the third quarter of 2008. Economic activity is expected to pick up in the second half of 2010 and GDP growth to recover to 2.5% in 2011.

In view of the deteriorating economic outlook, unemployment is expected to peak at around 11% in the first part of 2010.

Further, the minutes showed that the committee argued that, while progress had been made in the area of financial restructuring, action is needed on several fronts in order to re-establish viable commercial banks. According to board members, this requires cost reductions, downsizing, reducing foreign currency imbalances, and exposing borrowers to the true cost of funds.

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