06.07.2011

Central Bank of Iceland offers to purchase Icelandic krónur

The Central Bank of Iceland advertises herewith for bids on the sale of Icelandic krónur for cash payment in foreign currency. The auction is an element in the removal of restrictions on movement of capital as set forth in the Central Bank’s capital account liberalisation strategy, published on 25 March 2011.

Market makers in the interbank foreign exchange market are invited to act as intermediaries in the transactions. The Central Bank is offering to purchase 15 billion krónur in return for payment in euros. Offers shall be submitted by 12 July 2011. Further information on the auction can be found in the Terms of Auction. Concurrent with the auction, the Central Bank, on behalf of the Treasury, is offering to buy back króna-denominated Treasury bonds maturing before end-May 2013 (see the press release from Government Debt Management in the attachment).

The objective of these measures, which pertain to Phase I of the capital account liberalisation strategy, is to enable investors to sell their króna assets in an orderly manner if they so choose. The banks’ liquidity is strong enough to tolerate the movement of the krónur that the Central Bank is offering to purchase, and the above-mentioned repurchase of Treasury bonds diminishes the potential side effects of those transactions on the bond market.

After the first week in August, the Central Bank will offer to purchase euros versus payment in Treasury securities, as in the auction held on 28 June 2011.
The Central Bank aims to hold its next auction in which it offers to purchase Icelandic krónur in September 2011.

Attachments:

Terms of Auction (pdf)

Government Debt Management press release on repurchase of Treasury bonds

Central Bank of Iceland capital account liberalisation strategy, dated 25 March 2011

Further information can be obtained from Arnór Sighvatsson, Deputy Governor of the Central Bank, and Sturla Pálsson, Director of the International and Market Operations Department of the Bank, at tel +354 569-9600.

No. 19/2011
6 July 2011

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