04 January 2013

CB temporarily suspends foreign currency purchases

The Central Bank of Iceland has decided to suspend temporarily its regular purchases of foreign currency from market makers in the foreign exchange market. Since September 2010, the Bank has purchased foreign currency on a weekly basis, first in the amount of 500,000 euros per week from each market maker and, since July 2012, in the amount of 1 million euros, or roughly 500 b.kr. per week. In all, the Bank bought foreign currency for approximately 20 b.kr. in 2012, and it sold foreign currency for a total of 3 b.kr. in market intervention measures in March and on 31 December.

The Bank is of the view that the depreciation of the króna in recent weeks has been undesirably large, particularly in view of the fact that it is caused in large part by temporary factors related to financial institutions’ year-end position. In addition, outflows related to private sector foreign deleveraging have weakened the króna in recent months. The Bank therefore considers it appropriate to suspend its regular foreign currency purchases on a temporary basis. Nonetheless, the Bank considers it necessary, when conditions permit, to resume the purchase of sufficient foreign currency in the interbank market to defray the interest expense on the Treasury’s foreign debt. For the longer term, the Bank considers it appropriate to increase its non-borrowed reserves. 

Further information can be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.