Iceland Central Bank: 18% Rate!

Gee, do you think they are trying to attract some capital?

Iceland’s central bank unexpectedly raised the benchmark interest rate to 18 percent, the highest in at least seven years, after the island reached an aid agreement with the International Monetary Fund.

Policy makers raised the key rate by 6 percentage points, the Reykjavik-based bank said in a statement on its Web site today, taking the rate to the highest since the bank began targeting inflation in 2001. It will publish the reasons for today’s move at 11 a.m. local time.

The central bank is raising rates as Iceland, the first western nation to seek aid from the IMF since the U.K. in 1976, faces a prolonged contraction, coupled with possible hyperinflation and rising joblessness. The economy will shrink as much as 10 percent next year, the IMF forecasts. Iceland will receive about $2.1 billion in aid from the Washington-based fund, according to a deal struck on Oct. 24.

The US Fed starts a two day meeting today . . .


Iceland Central Bank Raises Key Interest Rate to 18%
Tasneem Brogger and Helga Kristen Einarsdottir
Bloomberg, Oct. 28 2008

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