News | Wednesday, 29 October 2008

Iceland lifts interest rates to 18 per cent on IMF orders

Iceland’s central bank lifted interest rates yesterday to 18 per cent from 12 per cent on the orders of the International Monetary Fund (IMF), highlighting the dramatic impact the organisation will have on the country’s ability to control economic and monetary policy.
The move was an attempt to support the Icelandic krona, which has lost 70 per cent of its value during the crisis before trading in the currency halted. It is due to re-float within a matter of weeks, a development that is regarded as a key step in restoring Iceland’s international credibility.
Following the collapse of the country’s banking system, the Icelandic economy was expected to contract by up to 10 per cent, unemployment would spike to around 8 per cent or higher and inflation could hit 20 per cent or more, according to economists.
The huge interest rate rise came as Iceland continued to try to rally international support for multi-billion dollar loans to help bolster its foreign exchange reserves, a move that should also help support its currency once its resume trading.
In an attempt to stabilise the economy, the Icelandic government has asked the IMF for a US$ 2 billion loan and was seeking an additional US$4 billion from its Nordic neighbours and other central banks.
A spokesperson for Icelandic Prime Minister Geir Haarde said yesterday that Iceland had sent an application to the United States’ (US) Federal Reserve and the European Central Bank for assistance and had also been in contact with the Bank of Japan via its embassy in Tokyo.

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Iceland lifts interest rates to 18 per cent on IMF orders

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