Iceland Keeps Benchmark Rate at 12% to Support Krona
24.09.2009
Iceland’s central bank left the benchmark interest rate unchanged as policy makers try to support the currency before capital restrictions are scaled back later this year.
Reykjavik-based Sedlabanki kept the key repo rate at 12 percent and left the deposit rate at 9.5 percent. The bank has cut the benchmark rate four times this year from a record 18 percent since obtaining a $5.1 billion loan from a group led by the International Monetary Fund.
Iceland (10) -- Analyses -- 2009
Iceland fighting the consequencies of the severe economic crisis
20.10.2009
Iceland’s economic collapse, sparked by the failure of its biggest banks in October, forced the island to impose capital controls to prevent a
sell-off of the krona at the end of last year. Restrictions failed to stop a 7.9 percent krona decline against the euro this year, forcing the bank to keep the repo rate high.
Governor Mar Gudmundsson said today the deposit rate has become the most effective policy tool for steering domestic demand, easing local pressure on the bank to cut the repo
rate. The IMF has warned that the central bank needs to focus on keeping the currency stable as Iceland targets relaxing capital controls from November. At 12 percent,
Iceland’s benchmark is Europe’s joint highest, together with Serbia’s two-week repo rate. Icelandic banks are currently “flooded” with money, Gudmundsson said today.
To drain liquidity from the market, the central bank is auctioning 28-day certificates of deposit at a minimum bid rate of 9.5 percent and a maximum rate of 10 percent
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