Iceland slashes interest rates by 3.5%

Iceland’s central bank, Sedlabanki, slashed interest rates today, earlier than scheduled, from 15.5% to 12% following a disastrous couple of weeks for the country.

The country faced a near-collapse of its banking system after the country’s three largest banks, Glitnir, Kaupthing and Landsbanki, were nationalised recently.

Meanwhile, the stock exchange was closed following a three-day suspension in a bid to prevent further crises.

Interest rates had previously reached record highs as the central bank tried to curb runaway inflation and support its struggling currency, the krona.

Icesave, the UK branch of Landsbanki, closed last week, leaving 300,000 UK savers unable to withdraw their funds.

Iceland’s savings accounts, which offer a higher level of interest than its European counterparts, have attracted many customers from overseas.

Meanwhile, UK Chancellor Alistair Darling, said that Treasury officials are in Reykjavik working with the Icelandic authorities to facilitate claims by UK charities and local authorities on their deposits held at these Icelandic banks.

It has been revealed that 108 British local authorities have £842.5 million invested in Icelandic banks, according to Britain’s Local Government Association.

In related news, Norway, also cut interest rates today by half a percentage point to 5.25%. The cut was the first since March 2004.

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