Iceland Gets Third Interest Rate Cut of 2010

May 5, 2010

Sedlandi Bank, Iceland’s central bank, has implemented another 50-basis point reduction of the seven-day collateralized lending rate to 8.5%.  Prior cuts of the same amount were announced on March 17 and January 27.  An IMF aid package in the autumn of 2008 mandated a sharp increase in the key rate to 18%, but last year saw such get cut in six steps by 100 basis points in March, 150 bps in April, 250 bps in May, 100 bps in June, 100 bps in  November and 100 bps in December.  Like then, today’s reduction, which brings the cumulative drop to 950 basis points, was justified in a statement by the prospect of lower inflation, the steadiness lately of the Icelandic krona, and a generally weak economic growth context.  The statement indicates scope for a further cut in rates persists if these conditions of lessening inflation and exchange rate stability hold, but officials also stressed caution in this process because of investor uncertainty about Iceland’s credit rating and the possibility of contagion in the region from the Greek debt crisis.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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