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Iceland cbank says rate rise aimed at crown market

Tue Oct 28, 2008 7:28am EDT

REYKJAVIK, Oct 28 (Reuters) - Iceland's central bank said on Tuesday a 6 percentage point increase in interest rates to 18 percent was aimed at restoring stability in the foreign exchange market and supporting the country's battered currency.

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"It is of overarching importance to restore stability in the foreign exchange market and support the exchange rate of the crown," Sedlabanki said in a statement.

"A contraction in demand will soon result in a surplus in the goods and services accounts. A negative output gap coupled with balance or surplus in the current account will contribute to the appreciation of the crown, given that trust has been restored in the foreign exchange market," it said.

The central bank added: "If forecasts materialise, the policy rate will be reduced in accordance with rapidly subsiding inflation." (Reporting via Stockholm newsroom)

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