Iceland eases króna strain
May 22, 2009
Iceland's steps to relax capital controls would ease pressure on its currency and help bring offshore and onshore króna exchange rates closer to convergence, the central bank said yesterday.
While "capital controls are expected to remain in effect for some time, targeted measures allowing partial conversion should reduce outflow pressures significantly", said the monetary policy committee of Sedlabanki. "These measures should facilitate further convergence" of the exchange rates.
Iceland, relying on a $5.1 billion (R43bn) bailout led by the International Monetary Fund to avert default, introduced the restrictions last year to prevent a selloff of the króna after the island's biggest banks failed.
Foreigners hold about 630bn krónur (R42bn) in króna-denominated assets that the controls prevent them from divesting, the central bank estimates. - Bloomberg
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