“The crossroads we are standing at concern the fact that we now need to change stability into investment, growth and employment. Most indications are that growth began again in the last part of last year. It was, on the other hand, not particularly vigorous and investment remains at a historic low,” Central Bank of Iceland governor, Mar Gudmundsson said in a speech today in Akureyri. Read the full story

The Central Bank of Iceland and the national power company have both signed important contracts with China this morning during He Guoqiang’s official visit. Read the full story

The Monetary Policy Committee (MPC) has voted to lower Central Bank interest rates by 0.5 percentage points. The deposit rate (current account rate) will be 7.0%, and the maximum bid rate for 28-day certificates of deposit (CDs) will be 8.25%. The seven-day collateral lending rate will be 8.5% and the overnight lending rate 10.0%. Read the full story

Attempts by the Central Bank of Iceland to strengthen its foreign currency reserves in the lead up to the banking crash were characterised by desperation and internal anarchy, according to a bank economist. Read the full story

The Norwegian Central Bank announced last week that it would not be making any changes to the key policy rate. The Executive Board agreed to maintain the 1.75 percent level that was approved at a previous meeting in December last year. Read the full story

The government of Iceland is currently considering enacting legislation to allow the country to borrow up to ISK 500 billion (USD 6.91 billion) in foreign currencies this year. The law is intended to secure the Icelandic krona and stabilise the Icelandic economy.

Iceland’s finance minister, Arni Mathiesen told Reuters: “We are proposing this legislation because we want to be in a position to react and be prepared for a crisis, should the situation on foreign markets change for the worse”.

This latest possible boost to Iceland’s economy comes just a fortnight after the deal with three Nordic central banks, allowing the country to swap kronur for up to 500 million euros if it needs to. The government said the deal was to bolster confidence in Iceland, and that it did not envisage taking advantage of the offer.

It is expected that if the legislation passes, the government will seek to make use of the facility. “”I cannot say when, but we expect to use at least a part of this authorisation to take a loan when situations in foreign markets allow us to do so,” Mathiesen said.

For more information on the Icelandic economy, see Glitnir’s recent research report at www.glitnirbank.com

Three Nordic central banks have lent Iceland credit of up to 1.5 billion euros ($2.3 billion) to strengthen the country‘s foreign currency reserves, reports The New York Times.

The deal, which was announced by the central banks of Sweden, Denmark and Norway on Friday, saw the Icelandic krona (ISK) appreciate 4.5 percent, reversing a slide of as much as 26 percent this year.

The liquidity boost will give the Central Bank of Iceland access to as much as 500 million euros from each of the Nordic banks through currency swap agreements.

The funds will almost double the foreign exchange reserves held by the Icelandic Central Bank which had promised to support the country’s banks if they defaulted on their foreign loans.

“In times of uncertainty and turmoil, the central banks have a responsibility to cooperate,” Stefan Ingves, the governor of Sweden’s Riksbank, said in a statement.

The deal hopes to calm the financial markets in Iceland which have been uneasy since the beginning of the year when rumours of a banking crisis led speculators to bet against the country’s currency.

Analysts welcomed the agreement, saying it would provide Iceland with much-needed assistance in its efforts to steady its currency and its image in global markets.

“The chances are good that this will be a turning point for Iceland,” said Fridrik Mar Baldursson, a specialist in finance at Reykjavik University. “It should increase confidence in Iceland and make it easier for the government of Iceland to borrow money at a reasonable rate.”

Icelandic banks, often described as the likely trigger for a collapse, also appear to have improved their positions. The spreads on credit default swaps (CDS) have narrowed, indicating that investors are less worried about the possibility of the banks going bust. The credit default swaps for Icelandic banks decreased by 50 to 55 points when the Nordic Stock Exchange in Iceland opened on Friday morning.

The CEOs of Iceland’s three largest commercial banks Kaupthing Bank, Glitnir Bank and Landsbanki Bank were pleased with the measures taken by the Icelandic Central Bank and believe it will have a continued positive influence on the market.

Glitnir Bank was recently able to raise capital in Norway through a covered bond issue for NOK 7 billion (EUR 900m) and has held preliminary talks with international investors about taking a stake in the bank. Shares of all the major banks also rose on Friday.

“We’ve already seen a degree of turning in the situation,” said Richard Portes, an economist and expert on Iceland at the London Business School. “People are waking up to the fact that these are well-run banks.” He also said the amount of credit provided by the Nordic central banks could probably be increased if necessary.

Iceland may have help from regional sources should a serious financial crisis crash their system. According to Kauppalehti, a Finnish financial news source, the Bank of Finland may be in a position to assist Icelandic banks should they continue to face difficulties.

According to Finnish reports, banks in the Nordic region agreed long ago to cooperate regionally in order to maintain local financial stability. Banks which operate in at least two Nordic countries could, according to this agreement, expect to be bailed out in case of troubles.

If the reports are true, Glitnir, Kaupthing and Landsbanki, which all have operations in Finland, may be in a position for future assistance.

Sweden’s Riksbank announced earlier this week, however, that the Nordic banks have no such agreement, according to reports on Bloomberg.com. That website reports that the Riksbank rejected the idea that they would assist Iceland’s banks in a financial crisis situation.

Mattias Persson, the head of the financial stability department at the Riksbank gave an interview on the subject on Thursday. He said that there was a memorandum of understanding between the Nordic central banks, however it “exists to allow the sharing of information, not to provide any lending facility,” he said.

“I don’t think anybody ever really thought they would step in and help, nor do I think that that’s where we’re going,” said Ludvik Eliasson, an economist at Landsbanki. “The problem is more that the central bank can only provide liquidity in krónur whereas the commercial banks need liquidity mostly in other currencies, which is a very unusual situation.”

Iceland’s central bank has yet to comment on the issue.

The Central Bank of Iceland announced this morning that it would raise its policy interest rate by 0.5 percentage points to 15.5%.

Previously Iceland had unexpectedly raised its policy rate by 1.25 percentage points on 25 March in reaction to a worsening inflation outlook due to the depreciation of the Icelandic crown (ISK) and increased inflation.

The Icelandic Central Bank has followed up last month’s rate hike with a further increase today, thus showing its determination to hit the country´s inflation target of 2.5%.

More information on the interest rate rise in Iceland can be found at www.sedlabanki.is

Reuters reports thtat Consumer confidence in Iceland is up 1.4 % in December from last month, but is down over 15 % from 2006. Figures from market research firm Gallup showed this when made puplic last Friday.

The index rose 1.6 points from 116 to to 117.6 the month before. Iceland central bank  (Sedlabanki) held interest rates unchanged this week at a record 13.75 %. The banks spokesman said the impact of its latest of its 19 monetary policy hikes in less than four years and a worsening global outlook, would cool the fast moving Icelandic economy.

The bank raised rates by 45 basis points on November the 1st 2007. Data showed inflation hit 5.9 percent year-on-year in early December 2007.