Icelandic Króna has bad few days despite exchange restrictions

Temporary capital flow out of Iceland is the reason for the króna’s marked depreciation in the last few days, according to an analysis expert at Íslandsbanki.

A possible cause for the unusual level of outward capital flow is the payment of foreign debts by businesses or municipalities.

The Icelandic króna exchange rate had been stable for weeks until several days ago when it started losing ground and has now lost 1.5 to 2 percent of its value. That is a very significant short-term change, according to Jón Bjarki Bentsson, an analyst at Íslandsbanki.

“Despite the fact that there are exchange controls on the movement of capital and sizeable blocks stopping the transfer of capital not directly related to trade, it is of course permitted to buy currency for the import of goods and services and also to pay interest and payments on foreign loans,” Jón Bjarki told RÚV. In winter the inflow of capital is lower than in summertime, not least because of the flow of tourists which is very seasonal. If there is a period when there are more interest payments, someone is paying off foreign loans, or imports take a leap then currency takings from exports are not enough to cover it.”

Jón Bjarki is of the opinion that the exchange rate will strengthen as the year progresses.

“When the spring arrives and currency earnings start flowing more, both from the winter fishing season and not least from tourists, then pressure on the króna should lighten and we have been predicting that it will strengthen when the spring comes, but until then it could go either way,” Jón Bjarki said.

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