07 October 2008

Foreign exchange market measures

The exchange rate of the króna has depreciated sharply in recent weeks and is now lower than is compatible with a balanced economy. Measures will be announced to support an appreciation of the króna and to restore exchange rate and price stability.

The Central Bank is determined to do so. In cooperation with the Government, the Bank is preparing measures to create stability and a realistic exchange rate which ensures a rapid decline in inflation. Part of that effort is the significant strengthening of the foreign exchange reserves of the Bank that was announced earlier today.

Following consultations with the Prime Minister, the Central Bank of Iceland has decided to engage in foreign exchange transactions in the interbank market today at an exchange rate that takes reference from the trade weighted index of 175, equivalent to 131 krónur vis-a-vis the euro. Even though this exchange rate is stronger than at the end of last week, it is still significantly lower than compatible with stable prices in the short term. Efforts will be made to further strengthen the exchange rate with the aim of quickly reducing inflation.

Further information on exchange rate arrangements and the exchange rate of the króna will be announced in the next few days.


No. 32/2008
October 7, 2008