Iceland hikes interest rates from 12% to 18%

| October 28, 2008 | 0 Comments

Iceland’s central bank has raised its key interest rate a whopping 6% just two weeks after it cut rates from 15.5%.

According to the Central Bank’s governor, David Oddsson, the rise is intended to be only for the short-term to stabilise the currency, the krona. He added it is also in line with its agreement with the International Monetary Fund (IMF), after it secured an emergency loan of $2 billion (£1.3 billion) yesterday.

Trading in the krona has been suspended after its value plummeted 70%.

While the rescue from the IMF is seen as a breakthrough for Iceland, a number of conditions have been set out as part of the loan agreement.

It has already said it is seeking a further $4 billion in loans in addition to the $2 billion it received from the IMF.

The struggling country is grappling with financial meltdown after it nationalised its three largest banks earlier this month - Kaupthing Bank hf, Landsbanki hf and Glitnir Bank hf.

Finally, Iceland and the IMF are trying to curb runaway inflation, official figures show that the 12-month rate had risen to 15.9% in October from 14% the previous month. Economists predict it could reach as high as 20%.

In related news, Britons with deposits in Icesave, the branch of collapsed bank Landsbanki, should receive their funds in full by the end of November.

Tags: Glitnir, , Icesave, , , , , , Krona, Landsbanki

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