Iceland’s central bank today raised its key interest rate by a massive 6% to 18%.
Iceland has seen its currency plunge in recent weeks after its banking sector collapsed. An increase in interest rates would make its currency more attractive to foreign investors, thereby helping its value.
Prime minister Geir Haarde also said the country will need €3.2bn in financial support on top of the €1.6bn loan package announced by the International Monetary Fund (IMF).
“It’s not a precise number, it’s not a scientific number but we are looking in that neighbourhood,” Mr Haarde said on the sidelines of a meeting with his Nordic colleagues in Helsinki, Finland.
The prime minister would not say how much of the additional loans he hoped to receive from the other Nordic countries – Sweden, Finland, Norway and Denmark.
“I do not want to put pressure on them,” he said.
Iceland’s banking system has collapsed in the global credit crunch.
Icelandic officials are in talks with Nordic governments to secure the IMF aid.