According to the head of TM Insurance ltd, the removal of the capital controls in Iceland is becoming increasingly difficult due to the high interest rates in plance is increasing the amount of deposited money held by offshore investors. The interest rate is used to backstop the country's krona but the continuation of this policy poses a grave risk to its local equity market.
According to Sigurdur Vidarsson, CEO of Tryggingamidstodin hf, in an interview at Reykjavik after its IPO, "The central bank upholds very high interest rates which drives up the amount of offshore kronur owned by foreigners that would want to get out of the economy. Every day the problem is getting bigger and more unmanageable."
Iceland is having difficulty removing the controls it had put in place after the collapse of three of the country's biggest banks in 2008. The event sent the Icelandic economy and the krona into a steep decline, The next interest rate announcement would be on May 15 and the country's central bank has undertaken tight fiscal policy measures six times already since August 2011 in an effort to boost the krona and curb inflation to its benchmark 6%.
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