The Markets Department implements the Central Bank’s monetary policy. In order to achieve its price stability and financial stability objectives, the Bank conducts transactions with financial institutions. When the Bank determines the interest rates on its transactions with domestic financial institutions, it affects interest rates in the money market. The Central Bank monitors the domestic foreign exchange market and, when warranted, can intervene in the interbank market. The Bank also maintains and manages the international reserves and oversees Government debt management.
Central Bank of Iceland measures
The Central Bank of Iceland publishes a range of statistics on transactions it undertakes, including term deposits, minimum reserve requirements, collateralised lending, and bond purchases.
Market activity
The main purposes of the Central Bank’s market activities are to support monetary policy transmission, thereby supporting price stability, and to preserve financial stability. This page contains information on the Bank’s policy instruments, the Rules on Central Bank of Iceland Facilities for Financial Undertakings, and other information.
Markets
In performing its role, the Central Bank of Iceland may need to conduct transactions in specified financial markets or supervise them. Information on the interbank markets for foreign currency, the interbank for Icelandic krónur (REIBOR), and the reference interest rate for Icelandic krónur (IKON) can be found here.
Securities eligible as collateral
Certain rules apply to securities deemed eligible as collateral for Central Bank facilities. These are laid down in Rules no. 1200/2019, with subsequent amendments. Central Bank counterparties and participants in the Bank’s interbank payment system may provide such eligible securities as collateral for authorised limits in payment systems and as security for collateralised loans when these are available.
International reserves
The Central Bank’s international reserves include deposits with foreign banks and holdings in foreign bonds. The roles of the reserves include mitigating the impact of fluctuations in payments between Iceland and foreign countries – for instance, by intervening in the foreign exchange market with an eye to the Bank’s monetary and exchange rate policies – and to reduce the probability that capital inflows and outflows will jeopardise financial stability. The international reserves also function as a special reserve fund.
Government Debt Management
The Central Bank is responsible for tasks regarding the management of Government debt, in accordance with an agreement made with the Ministry of Finance and Economic Affairs. Under this agreement, the Bank administers domestic and foreign borrowings for the Treasury and for Government institutions, the issuance and sale of Treasury bonds in the domestic market, and other debt management for the Treasury, such as relending of borrowed funds, Government guarantees, and the State Guarantee Fund.