The Central Bank of Iceland has cut its key interest rate to 4.5% from 5.5% to help revive the country's struggling economy.
The cut is the eighth this year. Rates were 18% at their peak at the end of 2008.
Iceland's banks failed in 2008 sparking a spectacular economic collapse, but the economy is now growing again.
Last year, the economy shrank by 6.8%. However, figures issued on Tuesday showed the economy expanded by 1.2% in the third quarter.
The BBC reports this was the first growth that Iceland's economy has recorded for two years.
Last month, the Statistics Office said the economy was expected to contract by 3% this year, with a small expansion of 1.9% forecast for next year.
Iceland opened membership talks with the European Union earlier this year.