28 August 2002

The Central Bank of Iceland purchases foreign currency in the domestic interbank market

In the August issue of the Central Bank of Iceland Monetary Bulletin , the Bank announced its intention to purchase foreign currency in the domestic interbank market in order to strengthen its external position.  The Central Bank has now introduced to market makers(1) in the domestic foreign exchange market the modalities of the operations.  The main objective will be to purchase USD in an amount equivalent to as much as 20 billion Icelandic krónur before the end of next year, 2003.  The Bank's operations are not intended to affect the exchange rate of the króna.  The objective is only to strengthen the external position of the Bank.

The Central Bank of Iceland intends to purchase foreign currency from the market makers by two means:

1.  Regular purchases.  Up to three times a week, the Bank will purchase 1.5 million USD (equivalent now to roughly a 130 million kr.) each time.  The purchases will take place from 9 a.m. to 9:15 a.m. Mondays, Wednesdays and/or Fridays.  The amount of each purchase is only a fraction of normal turnover in the domestic foreign exchange market.
2.  Irregular purchases.  The Central Bank stands ready to purchase foreign exchange from the market makers at their initiative in higher amounts.  The pre-condition for such purchases is that the currency rate of the króna has strengthened from the latest official quotation.

If the Central Bank of Iceland deems conditions in the foreign exchange market such that purchases of foreign exchange would be ill-advised when they otherwise would have taken place, then it may choose not to enter into purchases for the time being.

Regular purchases of foreign currency in the interbank market will commence on September 2, 2002.

1) Market makers are: Búnaðarbanki Íslands hf., Íslandsbanki hf, Kaupþing banki hf., and Landsbanki Íslands hf.

August 28, 2002