Iceland lifts interest rate to 18%

Date: Tuesday 28 Oct 2008

Interest rates soared by 6% to a massive 18% in Iceland today as the country’s central bank attempted to prevent the collapse of its financial system.

Iceland, which cut rates from 15.5% less than a fortnight ago, has also asked the US Federal Reserve and European Central Bank for more cash.

It said today’s move formed part of its deal to borrow $2bn (£1.3bn) from the International Monetary Fund, but it still needs an extra $4bn (£2.5bn) to get out of trouble.

The rate hike is only a short-term measure aimed at stabilising the currency, said a hopeful central bank governor David Oddsson.

"With the collapse of three banks and the harsh external measures that followed, Iceland's foreign exchange market became paralysed," read a statement from the central bank.

The country has had to take over its three largest banks, Glitnir, Kaupthing and Landsbanki, after they failed to secure short-term funding.

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