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UPDATE 1-Iceland c.bank holds key rate at record 18 pct

Published 11/06/2008, 04:19 AM
Updated 11/06/2008, 04:22 AM

(Adds detail, background)

STOCKHOLM, Nov 6 (Reuters) - The central bank of crisis-hit Iceland held its policy interest rate unchanged at a record 18 percent on Thursday and said it expected a decision on IMF help to be made "very soon".

The central bank of the North Atlantic nation, suffering a financial meltdown that prompted the government to take over three top banks, hiked rates by 6 percentage points last week.

The move, urged by the International Monetary Fund, was aimed at restoring confidence in Iceland's currency.

Prime Minster Geir Haarde has said the collapse of Kaupthing , Landsbanki and Glitnir , whose rapid overseas expansion had left them with massive debts, could cost as much as 1.1 trillion crowns ($9.4 billion), or 85 percent of the country's 2007 gross domestic product.

The IMF has provisionally agreed to lend the country $2 billion to help rebuild its shattered financial sector and stabilise its battered currency.

The contents of the deal, which has yet to be approved by the IMF's board, have yet to be made public but the Icelandic central bank lifted its key policy rate to a new record on Oct. 28 as part of the agreement.

"As is well known, economic policy will be determined in collaboration with the International Monetary Fund in the immediate future," the central bank said in a statement.

"It is expected that a decision will be made very soon and that an action plan will then be published." Iceland has also sought help elsewhere, talking to potential lenders including the European Union, Russia and its Nordic partners, in an effort to secure the additional $4 billion it says it will need on top of the loan from the IMF.

The central bank said it would publish its monetary bulletin at 1100 GMT.

(Reuters monitors official news on Iceland via its Stockholm newsroom.) (Reporting by Niklas Pollard and Simon Johnson, editing by Mike Peacock)

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