The Icelandic króna has fallen 6% in respect to the Euro this month, 2% of that dip occurring over yesterday morning, RÚV reports. The Central Bank of Iceland intervened in the exchange market today to prevent further devaluation. It is the first time the bank has taken such an action since November of last year.
Jón Bjarki Bentsson, chief economist at Íslandsbanki bank, says uncertainty in the tourism industry and the future of Icelandic airline WOW Air are the main reasons behind the currency’s devaluation. WOW Air is currently searching for investors who would loan the company up to ISK 12 billion ($113m/€96m) over the next 18 months. Together with Icelandair, the company transports 80-85% of all travellers that visit Iceland, meaning its success or failure could hugely impact the tourism industry.
Jón says the risk of a large, permanent devaluation of the currency is much lower than it was, and that it is not likely the effect will be long-lasting. The Central Bank’s currency reserves are large and the bank’s actions yesterday show it is able to prevent further devaluation.
Minister of Finance Bjarni Benediktsson says the government has no reason to believe the króna will continue to fall. “What we’ve seen in the statistics in recent months is that we still have a good trade balance abroad and that shows a very strong position, a much stronger position than we’ve seen before and those are the most recent numbers we have,” he stated. “On the other hand we know that the country’s competitiveness has worsened and in the end that will impact the market, including people’s faith in the króna into the future,” Bjarni added.
Konráð S. Guðjónsson, economist at the Iceland Chamber of Commerce, says although authorities should be cautious, the Icelandic economy is in a very good position. “We have all learned well from what happened 10 years ago[...]households, companies, and the government, they all stand much better economically than we did then,” Konráð states. “The Icelandic economy’s overall debt position abroad is so, so, so much better. That alone helps enormously to keep the króna stable and really just shore up financial stability.”