ICELAND CENTRAL BANK PRESS RELEASE:
The Monetary Policy Committee (MPC) has voted to lower the policy rate by 1.5 percentage points to 15.5%. After its meeting in March, the MPC concluded that the conditions for monetary easing were in place. Economic developments since March 19 have been broadly consistent with this view.
As before, monetary policy is guided by the interim objective of stabilising the exchange rate, while the long-term goal remains the inflation target. This is primarily because of the need to protect vulnerable private sector balance sheets during the restructuring phase.
The króna has depreciated by nearly 9% since March 19. The weakness of the króna appears to have been driven by transitory factors, such as relatively large seasonal interest payments on non-resident ISK holdings. While the trade account has moved into surplus, there remains considerable uncertainty concerning the overall current account. Moreover, there is evidence that the capital controls were being circumvented. The authorities have now addressed this problem by closing loopholes in the legislation.
The MPC does not consider it likely that its March 19 decision to lower the policy rate by one percentage point had a significant impact on the króna. The wide interest rate differential between the króna and the major currencies should continue to provide scope for continued careful easing of monetary restraint without jeopardising the stability of the króna. Since end-2008, the spread between the domestic policy rate and the ECB policy rate has increased slightly.
Inflationary pressures have continued to subside. The CPI fell by 0.6% in March, bringing the rate of inflation down from 18.6% in January to 15.2%. The decline in inflation was associated with a sharp contraction in domestic demand, as well as favourable exchange rate developments. Housing demand has been particularly weak, leading to a significant drop in the housing component of the CPI. Short-term indicators of domestic demand, such as turnover data, suggest that the contraction has continued in Q1/2009. Business confidence has recovered slightly from an all-time low. The labour market has also continued to soften, with unemployment registrations rising at a rapid rate and wage pressures remaining subdued. In the MPC’s view, recent developments indicate that inflation will continue to fall rapidly, broadly in line with the Central Bank’s January forecast. Businesses’ inflation expectations have also declined sharply.
The appreciation of the króna in January and February contributed to the benign inflation outcome. The weakness of the króna in March is unlikely to slow down the disinflation process materially, given the sharp contraction of domestic demand. In view of long-term fundamentals, the króna also appears likely to recover from its recent position. Such a recovery is consistent with the view of the MPC during its deliberations in March.
Because they prevent disorderly capital outflows, capital controls are an unfortunate but indispensable element of a strategy aimed at protecting balance sheets and promoting a sustainable recovery. In its March 19 statement, the MPC concluded that, due to remaining uncertainties, the conditions for lifting the capital controls were not yet in place. Increased clarity about balance of payments prospects, the medium-term fiscal consolidation plan, and progress in financial sector restructuring are the prerequisites for a significant easing of controls. While current domestic and external circumstances do not yet allow for the removal of the capital controls without the risk of instability, the Central Bank of Iceland regularly assesses their effectiveness and is exploring possibilities for their gradual, systematic easing as soon as conditions permit.
The next MPC announcement is scheduled for May 7, 2009.
As soon as capital controls are lifted, the kronur will drop like a rock, as holders of Icelandic debt –in the many $billions, with a “b” — seek to recoup their investment. The controls are therefore not likely to be lifted any time soon. Take a deep breath, Icelanders!
I agree with Suomi, this will be a hard task
Who said that we are in a hurry?
But I have a good idea for investors. If they want to get currency control lifted to get their investments back – they should invest in Iceland to restart the economy! Bingo! 8-)
I read statements like this and the words flow over me like “don’t worry, everything will be ok”. The central bank must be presenting the most view in the country, but I thought that was usually the role of the incumbent government…
I meant to say “the most optimistic view in the country”…
@Alexander: “give us more money so that we can return the money you gave us before” is, in fact, not usually the best way to convince someone to grant you a lifeline.
ALEXANDER, THANKS FOR YOUR TYPICAL ICELANDIC-MINDSET RESPONSE.
WHAT THE REST OF THE WORLD THINKS IS THAT ICELANDIC ECONOMY IS NOT TRUSTWORTHY AT ALL BECAUSE THERE ARE LOTS OF RESTRICTIONS, FAKE CURRENCY RATE, HUGE DEBTS THAT THE NATION WON´T BE ABLE TO PAY BACK IN TIME, AND THE URGE OF NEED FOR MORE LOANS FROM ABROAD SOON.
IT IS YOUR PROBLEM TO DECIDE IF YOU ARE IN A HURRY OR NOT, BUT MAYBE YOU SHOULD READ THE NEWSPAPERS OR WATCH TV HERE AND THEN… BECAUSE ALL ICELANDIC COMPANIES ARE IN A REAL HURRY, AND ALL THE CITIZENS, SPECIALLY THOSE WHO HAVE TO PAY A MORTAGE ARE IN HURRY…
EVERYONE IS ASKING WHEN AND HOW IS THIS ALL GOING TO END.
YOU HAVE RECEIVED HUGE LOANS FROM THE IMF AND MANY OTHER COUNTRIES. THAT SHOULD BE PRETTY ENOUGH TO RESTART AN ECONOMY OF A NATION WITH 300.000 PEOPLE, BUT NOT, IT IS NOT EVEN ENOUGH TO MAINTAIN ARTIFICIALLY ALIVE AN ALREADY DEAD CURRENCY.
SO NOW ICELANDERS HAVE THE HUGE DEBTS THEY CONTRACTED BEFORE THE BEGINNING OF THEIR “PURE AND UNIQUE VIKING CRISIS”, THE HUGE DEBTS OF LOANS TO PAY BACK TO THE IMF AND A LIST OF COUNTRIES; A TOTALLY RUINED ECONOMY, A III WORLD LIKE METAL INDUSTRY THAT IS IN HANDS OF AN AMERICAN MULTINATIONAL, AND FISH THAT IS IN HANDS OF A FEW ICELANDERS + A PUNCH OF BANKERS AND POLITICIANS THAT ARE ALL THIRSTY FOR MONEY, SPECIALLY NOW…
AND YOU WANT PRIVATE INVESTORS TO PUT THEIR MONEY IN THIS COUNTRY ??? A COUNTRY THAT COULD NOT BE SAVED NOT EVEN WITH THE IMF LOAN AND THE LOANS FROM MANY COUNTRIES ALTOGETHER???
YOU HAVE TO BE KIDDING!!!
TO WHOM ARE YOU GOING TO BEGG CAP IN HAND NOW?? THE CHINESE??
THIS COUNTRY IS TOTALLY OWNED BY FOREIGNERS AT THIS MOMENT, AND YES, THERE WILL BE LOTS OF INVESTMENT AND FOREIGNERS WILL BUY EVERYTHING WHAT IS LEFT TO BE BOUGHT.. BUT EVERYONE, EVEN ME, IS WAITING FOR THE KRONA TO HAVE ÍTS REAL VALUE ( 1000 ISK PER EURO ??)
I WOULD RATHER INVEST MY MONEY IN BRASIL OR INDIA THAN IN A COUNTRY LIKE THIS REALLY, SO MUCH CORRUPTION AND ECONOMIC RESTRICTIONS REALLY SCARES EVERYONE!!
@Gus
a) Seriously, drop the caps please.
b) You’d rather invest in Brazil because there’s corruption in Iceland? … You’ve never been worked with Brazilians, have you?
And by the way YESSS, we are in a hurry, the country is SINKING.
If somebody is in the possition of “haveing to invest money, belive me they will invest it in Brazil, eyes closed, now if you have the option of investing in Iceland or investing in Brazil or not investing, maybe they would not invest in any of both, but if the only option is that you HAVE to invest in any of this two countries, trust me I would rader risk my money in Brazil than loose it In Iceland, so Icelandres can keep their dream alive for few more months.
Here is a post for few blid people that think this is not happening.
http://www.newsfrettir.com/index.php?option=com_content&view=article&id=441:grants-of-big-companies-to-the-distressed&catid=29:poverty&Itemid=50
CARLSON. BRASIL IS A RAPIDLY GROWING ECONOMY, FULL OF OPPORTUNITIES. IT IS NOT ABOUT BRAZILIANS, IT IS ABOUT THE COUNTRY. ICELAND HAS ECONOMIC RESTRICTIONS YOU CAN ONLY FIND IN COUNTRIES LIKE NORTH KOREA OR CUBA. THAT IS THE MAIN REASON FOR NOT INVESTING HERE.
INVESTING IS ABOUT TRUSTING WHERE YOU ARE GOING TO PUT YOUR MONEYS AND EXPECT TO MAKE PROFIT OF IT. NOT EVERYONE IS HONEST OR AS CLEVER AS THEY SEEM TO BE, INDEPENDENTLY OF THE NATIONALITY.
AT THIS POINT, KNOWING BY FIRST HAND HOW THINGS ARE IN ICELAND, IT IS BETTER TO INVEST ANYWHERE IN THE WORLD BUT HERE. I KNOW LOTS OF PEOPLE INVESTING IN BRAZIL, AND THEY ARE MAKING MOUNTAINS OF MONEY, MONEY THEY ARE FREE TO MOVE AROUND!!
IT IS TOTALLY STUPID TO THINK THAT PEOPLE OVER HERE ARE TOTALLY HONEST JUST BECAUSE THIS IS A NORDIC COUNTRY. SORRY, BUT NO ONE LIVES ON THAT ANYMORE. ICELAND IS A RUINED COUNTRY AND THE LEVEL OF CORRUPTION HERE IS THE WORST, THE WORST BECAUSE IT COMES DIRECTLY FROM ABOVE! FROM THE GOBERNING CLASS, THE BANKERS AND ALL THOSE WE LED THIS COUNTRY IN THEIR HANDS… AND LOOK … THIS IS JUST LIKE ARGENTINA OR WORSE, OR LETS SAY, URUGUAY, VERY RICH COUNTRIES BETRAYED AND SOLD BY ITS OWN POLITICIANS AND BANKERS…
SAD BUT TRUE!
BTW, I WILL DROP THE CAPS WHENEVER I WANT. IT IS NOT ABOUT THE CAPS, IT IS ABOUT WHAT YOU SAY. IT IS NOT ABOUT THE SHAPE OF THE LETTERS, NOR THEIR SIZE, IT IS ABOUT THE MESSAGE…
BTW, I HAVE BEEN FOLLOWING ICB RELEASES AND NOW I UNDERSTAND THEY ARE TOTALLY NON-TRUST WORTHY.
ICB RELEASES ARE LIKE A JOKE. I ASK MYSELF WHAT THE GUY IS THINKING OR DOING THERE REALLY. JUST COMPARE THIS JOKES WITH ANY OTHER SERIOUS CENTRAL BANK.
THOSE RELEASES ARE JUST THE LAUGH OF THE WHOLE WORLD. I CAN SEE INVESTORS EVERYWHERE READING THAT AND LAUGHING TO DEATH. WE ALL KNOW THAT MOST OF IT IS PURE CRAP!!
THEY SHOULD HIRE SOMEONE INTELLIGENT TO WRITE IN A REALISTIC WAY THAT AT LEAST CAN START BY RESTITUING INVESTORS TRUST ON THIS ICB AND WHAT THEY SAY… AT LEAST THAT!! AND THEN LATER TRUST IN THE ECONOMY… BUT WITH SUCH A CRAP TO READ, REALLY… THEY ARE JUST SCARING EVERYONE AWAY!!
Gus,
Calm down. I was just trying to point out that in terms of corruption, Icelanders have nothing on Brazil, which everybody knows. It doesn’t mean I’d put money in Iceland anytime soon, so chill.
And you are, of course, free to type in all caps, just like I’m free to mostly not read it because it makes my eyes bleed. I was merely suggesting something that would make it easier for you to carry through your “message”.
suomi is right, the restrictions can not be lifted,
if they would be lifted all foreign investors vill pull back their money and the kr will collapse,
we need this tool to buy time until we manage to stabilize our economy, we need to kick IMF out of the country and put all big industry plans on hold
for now,
the only loan we have gotten so far is 800m $ from IMF, i dont have that in my pocket but its not much
i dont think we need any loans.
Gus from Switzerland I do not blame for this CAPS LOCK nonsence.
It is moderators for not stopping all posts except for ones he makes that are not in CAPS:
He would still post even if made to send in from cellphone typing from single finger. He likes this audience.
Moderator are ones to blame for this CAPS LOCK posts driving people away.
Ross..As a Brazilian,I would like to say:I am sorry if you have ever worked with some Brazilian that isnt a good person.We are honest,dignified…good people.Consider all Brazilians currupts is a raw deal!There are corrupt and bad people in any place around the world.