Iceland hikes lending rate to 18%

Iceland’s currency collapsed after the government was forced to take control of the country’s largest banks after the institutions were unable to obtain short-term funding. The nation’s economy is expected to contract sharply as it deals with the aftermath of the crisis.

The conditions of the IMF package “presumably included decisive action to support the currency, reduce the economy’s previously excessive reliance on overseas finance and control inflation, which is currently at 14%,” wrote Ben May, European economist at Capital Economics.

“Today’s move clearly goes a step in that direction, but may not enough on its own,” May said. “Accordingly we certainly would not rule out further sharp hikes in Icelandic interest rates over the coming weeks and months. Needless to say, all of this bodes ill for the outlook for the economy.”

http://www.marketwatch.com/news/story/Iceland-hikes-lending-rate-18/story.aspx?guid=%7B6E56439E%2DD395%2D4055%2DB322%2D52BD9F1282AD%7D

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