Wednesday, October 29, 2008

Iceland: 600bps Rate Hike Per Order of the IMF

  • Oct 28: Iceland’s central bank lifted the policy rate from 12% to 18% (Europe's highest) on the orders of the International Monetary Fund, highlighting the dramatic impact the organization will have on the country’s ability to control economic policy
  • This hike reverses the Oct 15 unexpected reduction in the policy rate by 3.5% to 12% in an unscheduled meeting after the nationalization of three banks (See related spotlight issue: Iceland's Banking System In Turmoil: How It Got Here)
  • Rationale: “It is considered unavoidable to provide the króna (local currency) with a firmer footing inn the foreign exchange market through a restrictive policy rate” (Central Bank)

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