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Iceland’s central bank today raised interest rates by a massive 6 percentage points to 18 per cent and said it had applied to the US Federal Reserve and the European Central Bank for extra funding.
The struggling country has already said it needs another $4 billion (£2.5 billion) in loans on top of the $2 billion it is seeking from the International Monetary Fund (IMF).
The massive rise in interest rates, coming only a fortnight after borrowing costs were cut, is thought to be in response to demands from the IMF to support the country's currency, the krona. Trading in the currency has been suspended after its value fell 70 per cent.
However, Iceland and the IMF are also trying to stem soaring inflation. Official figures released today showed the 12-month rate reached 15.9 per cent in October from 14 per cent a month earlier. Economists predict it could go as high as 20 per cent.
Two weeks ago, Iceland's central bank cut rates by 3.5 points to 12 per cent. Its financial system has virtually collapsed after being forced to take over three of its biggest banks and the currency has crashed amid fears it will default on its debt repayments. Trade in the Icelandic crown has virtually frozen.
Although the IMF-led rescue package represents a breakthrough for Iceland in its bid to stabilise its economy, it has also been forced to agree to conditions set down by the organisation as part of the loan agreement.
The UK is on the short list for the next currency crisis.
The only defense will be, as used in Iceland and Hungary, a massive rate rise.
Or, gordon brown could choose to help the debt laden service their debts and let most of us starve and freeze as sterling becomes worthless.
L Mckay, Norh Shields, UK
Typical blinkered comment from ruskee who has no grip on what is happening. Don't worry ruskee, interest rates can hit zero here and we will still have a massive recession and you won't be able to afford a loaf of bread because it costs too much and you still won't get credit. Learn some economics.
Edward, London,
Ruskee ? Hello ? is anyone there? Interest rates with Major and Lamont were at 15% for about 30 minutes. I was there. I remember.
Tom Benford, Kyoto, Japan
How long before the IMF will order us to increas our rates?
This would be the final indignation for Brown. Money would pour in and we would be building on a base of saving rather than credit.
Those jumping into current fixed rate deals might have reason to look back in regret
V. Cooper, Somerset, UK
At least we're not as badly off as with Major and Lamont when we had a 15% interest rate here in UK...
ruskee, London,
I am not an economist but surely high inflation is a boon to debtors although not so good for prudent savers like me. Like Bill in Kuala Lumpur I wonder what interest Icesave will offer if it reopens (not that I would be tempted even with sky high interest rates)
Paul, Charlottesville,Virginia,
This is the same rate of interest (18%) that I had for my first mortgage. Jimmy Carter was President. I wonder if this is an omen if Maxim Leader Obama Ascends his throne ?
Desmond Taylor, Houston, USA Tx
It shows is the self- preservation mentallity of
banks. It just shows what happens when bankers
get preoccupied with sales.
There's a big lesson for our cash hungry bankers in
this country and politicians who think its going to be
an easy ride reducing interest rates.
M. Walker., Nr. Bromsgrove., Worcs.
I wonder what interest Icesave will offer when it reopens?
Bill Peter, Kuala Lumpur, Malaysia
No doubt UK under Brown and Darling will soon be in the same position.
Bob Travels, Stevenage,
Does that mean the UK savers whose money was stolen will get a good rate of return?
JP, Sydney, Australia
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