Iceland's central bank on Wednesday said it had maintained its key policy interest rate at 9.25%, as uncertainty around ongoing earthquakes and a potential volcanic eruption outweighed a deteriorating inflation outlook.

"Although the effects of recent interest rate hikes are coming more clearly to the fore, the poorer inflation outlook suggests that it may prove necessary to tighten the monetary stance still further," the Bank of Iceland said in a statement.

"In spite of this, the monetary policy committee (MPC) has decided to keep the key interest rate unchanged, owing to uncertainty about the economic impact of seismic activity on the Reykjanes peninsula," it added. (Reporting by Louise Breusch Rasmussen, editing by Anna Ringstrom and Terje Solsvik)