Central Bank of Iceland offers to buy Icelandic kronur

The Central Bank of Iceland is advertising for the submittal of offers to sell Icelandic kronur for cash payment in foreign currency. The auction is an element in the removal of restrictions on movement of capital as set forth in the Central Bank’s capital account liberalisation strategy, published on 25 March 2011.

Market makers in the interbank foreign exchange market are invited to act as intermediaries in the transactions. The Central Bank is offering to purchase 15 billion krónur in return for payment in euros. Offers shall be submitted by 7 June 2011. Further information on the auction can be found in the Terms of Auction. Concurrent with the auction, the Central Bank, on behalf of the Treasury, is offering to buy back króna-denominated Treasury bonds maturing before end-May 2013 (see the press release from Government Debt Management in attachments below).

The objective of these initial measures in Phase I of the capital account liberalisation strategy is to enable investors to sell their króna assets in an orderly manner if they so choose. The banks’ liquidity is strong enough to tolerate the movement of the krónur that the Central Bank is offering to purchase, and the above-mentioned repurchase of Treasury bonds diminishes the potential side effects of those transactions on the bond market.

(Central Bank of Iceland press release. More details on www.sedlabanki.is)