In August 2002, the Central Bank of Iceland announced that it intendedto purchase foreign exchange in the domestic interbank market in order tostrengthen its net external position (Press Release nr. 10/2002). The Bank wouldpurchase foreign exchange two to three times per week, 1.5  million USdollars each time. The Bank would also be prepared to purchase foreign exchangefrom market makers in the interbank market at their initiative and in higheramounts.

Regular purchases of foreign exchange commenced on September 2, 2002.Initially, the Central Bank purchased foreign exchange on Mondays andWednesdays. As of January 10, 2003, the Bank has also purchased 1.5 million USdollars on Fridays. Moreover, the Bank purchased 50 million US dollars from onemarket maker around the middle of January. Altogether, Central Bank purchases offoreign exchange since September 2002 total 125 million US dollars.

In its announcement in August 2002, the Central Bank stated that it intended to purchase the US dollars equivalent of 20 billion Icelandic krónur inUS dollars before the end of 2003 (roughly 230 million US dollars at the time).The purpose of these purchases was not to influence the exchange rate of thekróna, but rather to strengthen the net external position of the Bank.

The inflow of foreign exchange has been stronger than foreseen when theforeign exchange purchases were initiated in September 2002. This allows theCentral Bank to strengthen it external position more rapidly than envisaged lastfall. In view of that, the Central Bank has decided that as of Thursday February6, 2003 and until further notice, the Bank will purchase 1.5 million US dollarsevery day of the week, Monday through Friday.

2/2003

February 5, 2003