August 15, 2014 / 4:11 PM / 3 years ago

UPDATE 2-Iceland central bank governor Gudmundsson gets new 5-year term

(Adds Gudmundsson comment, background)

By Ragnhildur Sigurdardottir

REYKJAVIK, Aug 15 (Reuters) - Iceland’s Ministry of Finance said on Friday it had re-appointed Mar Gudmundsson to a new five-year term as governor of the country’s central bank.

Gudmundsson will play a key role in removing capital controls imposed after the country’s top banks collapsed under a mountain of debt in 2008. He will also be involved in deciding how to handle the estates of the old banks.

“I think this is positive news for the markets, because the central bank has been making good headway in terms of their credibility - getting inflation under control and facilitating more stability in the foreign exchange market,” said Islandsbanki senior economist Jon Bentsson.

“Changing the governor at this juncture with the lifting of capital controls nearing us in time would probably have sent a confusing message to both domestic and international markets.”

In May, the government appointed a committee to review the central bank. That committee may propose changes in how the central bank is run.

If those changes meant senior personnel would need to be re-appointed, Gudmundsson said in a statement on the central bank’s website, he might not re-apply for the job. He said he was interested in working internationally before getting too old.

The finance minister said earlier this week that the government was exploring the possibility of appointing more than one governor to handle the job’s increased workload.

Gudmundsson’s renewed appointment comes after speculation the government might replace him after his term ended, because of what analysts said were tensions between him and the government over economic policy.

Gudmundsson took over at the central bank in 2009, shortly after Iceland’s top three banks collapsed. Under Gudmundsson, the central bank pursued a series of rate cuts that over two years lowered the key borrowing rate to single digits from a peak of almost 20 percent.

Iceland’s central bank, which is due to announce its next rate decision on Aug. 20, left its rate unchanged at 6.00 percent in May.

Iceland’s economy has picked up sharply in the last couple of years. It expanded 3.3 percent in 2013, and the central bank expects growth to accelerate this year to 3.7 percent as domestic demand recovers. (Additional reporting by Mia Shanley, writing by Sven Nordenstam; Editing by Larry King)

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