(1888PressRelease)
November 04, 2008 - London, The raise was part of its agreement with the International Monetary Fund (IMF) from which it borrowed $2bn (£1.3bn).
The increase comes less than two weeks after Iceland cut rates by 3.5 percent from 15.5percent. With a much higher return promised, the rate increase will hopefully encourage investors to put their money back into Iceland's battered financial system.
In a statement, the Iceland’s central bank said, "It is of overarching importance to restore stability in the foreign exchange market and support the exchange rate of the crown."
Central bank governor, David Oddsson, recognized that the rate increase would harm the public. "This rate will obviously be very hard on the public and businesses," he said. However, he added that the rise in rates were temporary and designed to stabilize the currency.
"If forecasts materialize, the policy rate will be reduced in accordance with rapidly subsiding inflation,” the central bank added.
The Icelandic government, which has borrowed $2 billion from the IMF said that it needs an additional $4 billion in loans and had approached the European Central Bank and the US Federal Reserve.
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