Iceland Benchmark Interest Rate Kept Unchanged

The Central Bank of Iceland has kept the benchmark interest rate at the same level for the 5th straight meeting as the currency market interventions took some sort of pressure off the Krona, the major currency of Iceland. This also played a part to cool down the inflation. The 7-day collateral lending rate is still at 6%, as mentioned through an official statement of Sedlabanki in its website.

According to bank’s statement, the intervention policy of the bank has played a major contribution to the stability that the exchange rate is seeing off late. The policy is kind of conducive for providing a stronger anchor for inflation expectations and it is going to promote more rapid disinflation.

On the last month, the Central Bank of Iceland intervened twice in the foreign exchange markets in an attempt to provide Krona some further strength. The policy makers are doing their best to protect Krona from experiencing any losses as they are working together to phase out capital controls in place since the banking meltdown that this European country experienced in 2008. On today, Krona stayed more or less unchanged as it is currently at 160.31 per Euro.

In 2013, Krona has gained above 5% against Euro, thereby playing its part to slow down the inflation to 3.3% in May, which was above 6% in last year only. The Central Bank also increased the rates six times since August, 2011 in an attempt to prevent Krona from suffering losses due to fuelling inflation.

The new Government of Iceland took office after the 27th April elections concluded. A couple of key goals of the new Government are exiting any sort of currency controls and stabilizing the Krona. On 10th June, the Prime Minister of Iceland, Sigmundur Gunnlaugsson made a pledge to push for a new action plan which will cut down the household debt burdens. Gunnlaugsson added that work on 10 other proposals will start soon as well and those are expected to be completed by next spring.

The Progressive Party, led by Gunnlaugsson and the Independence Party were successful in ousting the Social Democrat led coalition as they promised to provide mortgage relief and cut down the taxes. Iceland completed a 33-month long International Monetary Fund program in August, 2011. It is currently outgrowing most of the Europe which is showing signs of recovering from recession.