The Central Bank of Iceland has adopted new Rules on Minimum Reserve Requirements of Financial Undertakings (credit institutions) which are licensed to operate under Article 4, points 1, 2 and 3 of Act No. 161/2002 on Financial Undertakings. Earlier this year the Central Bank announced that changes would be made to minimum reserve requirements with the aim of creating operating conditions for Icelandic credit institutions similar to those in most European countries (see the Bank's press release No. 5/2003 of March 7, 2003.). It was also stated that the changes would be implemented in two phases. The former phase would involve a lowering of the reserve requirement ratios and under the second phase the Central Bank would adjust the reserve base and the reserve ratios to the practices of the European Central Bank. The first phase was implemented in March this year.

In its November edition of Monetary Bulletin, the Central Bank announced that, if necessary, it would take measures to sterilise the effect of its regular purchases of foreign currency during the coming year, to prevent them from causing domestic monetary expansion. The same applies to the impact of these changes on the minimum reserve requirement.

The new Rules enter into force on December 21. The Rules have been published on the Central Bank website and will be published in Section B of the Law and Ministerial Gazette (Stjórnartíðindi) this December. An English translation will be published on the Bank's website shortly.

For further information, contact Birgir Ísleifur Gunnarsson, Chairman of the Board of Governors of the Central Bank of Iceland, tel. (+354) 569-9600.

No. 28/2003

December 3, 2003