29 Oct 2008

Iceland raises interest rate to 18%

6:23 am on 29 October 2008

Iceland's central bank has raised its key interest rate to 18% from 12% as it battles against financial collapse.

The rise comes less than two weeks after Iceland cut rates from 15.5%.

The increase is part of an agreement with the International Monetary Fund, under which $US2 billion was borrowed.

Prime minister Geir Haarde said Iceland needs another $US4 billion in loans and has approached the European Central Bank and the US Federal Reserve.

Central bank governor David Oddsson said he hopes the rise in rates would only last for a short time and added that the move was designed to stabilise the currency.

The government has also imposed strict foreign exchange restrictions on the trading of its currency.

The Icelandic crown traded internationally for the first time for a week on Tuesday, with the value slumping to 240 to the euro from Monday's official fix of 152.