Reykjavik - Iceland's central bank on Thursday lowered its key interest rate by 1 percentage point to 17 per cent, the first cut since mid-October when the country was hit by the global credit crunch.

The move was announced a week after the head of a delegation from the International Monetary Fund (IMF) concluded a visit to Iceland, saying there were signs Iceland's battered economy was showing some signs of improvement with inflation appearing to have peaked.

IMF delegation head Mark Flanagan said last week that "the krona has stabilized and inflation appears to have peaked."

The central bank, or Sedlabanki, raised interest rates from 12 to 18 per cent on October 28. In mid-October it had cut the rates from 15.5 per cent to 12 per cent.

According to the central bank's most recent estimate, inflation was at 17.6 per cent.

Iceland is currently ruled by an interim government led by Prime Minister Johanna Sigurdardottir. The government recently changed the composition of the central bank, replacing David Oddsson - a former prime minister as governor.

The IMF delegation visited Iceland as part of a review after the fund in November approved a 2.1-billion-dollar loan to the North Atlantic nation of 320,000 people.

Iceland's main banks were taken over by the government in the wake of the global financial crisis and unemployment has surged.

Early elections are due on April 25. The interim government replaced the grand coalition formed 2007 between the conservative Independence Party and the Social Democratic Alliance that collapsed end of January after mass protests. (dpa)