Central Bank of Iceland Lowers Policy Rate

The Central Bank of Iceland announced this morning that the policy rate has been lowered by 3.5 percent, from 15.5 to 12 percent, because of radical changes in the Icelandic economic landscape over the past week.

“They are on the right track,” Vilhjálmur Egilsson, managing director of the Confederation of Icelandic Employers (SA), told mbl.is in reference to the Central Bank’s move. “It is the first step and then they have to take further steps.”

Egilsson said he welcomes the Central Bank’s decision, however adding, “I wanted to see them go further, and they will go further.”

The announcement from the Central Bank states that the Icelandic banking system had been unable to withstand the challenge created by a difficult market situation, lack of economic trust worldwide and domestic risk-seeking.

Various jobs have evaporated as a consequence, demand is declining and expectations are low, the Central Bank commented, predicting that the collapse of the Icelandic banking system will have a further impact on the national economy, causing severe recession.

The Central Bank stated that the decision to lower the policy rates was based on discussions between the bank’s board of directors and representatives of the employment market as well as other individuals who could help the bank evaluate this critical situation.

The Central Bank will announce its next policy rate decision on November 6.

icelandreview.com