05 February 2003

The Central Bank of Iceland purchases of foreign exchange

 In August 2002, the Central Bank of Iceland announced that it intended to purchase foreign exchange in the domestic interbank market in order to strengthen its net external position (Press Release nr. 10/2002). The Bank would purchase foreign exchange two to three times per week, 1.5  million US dollars each time. The Bank would also be prepared to purchase foreign exchange from market makers in the interbank market at their initiative and in higher amounts.

Regular purchases of foreign exchange commenced on September 2, 2002. Initially, the Central Bank purchased foreign exchange on Mondays and Wednesdays. As of January 10, 2003, the Bank has also purchased 1.5 million US dollars on Fridays. Moreover, the Bank purchased 50 million US dollars from one market maker around the middle of January. Altogether, Central Bank purchases of foreign exchange since September 2002 total 125 million US dollars.

In its announcement in August 2002, the Central Bank stated that it  intended to purchase the US dollars equivalent of 20 billion Icelandic krónur in US dollars before the end of 2003 (roughly 230 million US dollars at the time). The purpose of these purchases was not to influence the exchange rate of the króna, but rather to strengthen the net external position of the Bank.

The inflow of foreign exchange has been stronger than foreseen when the foreign exchange purchases were initiated in September 2002. This allows the Central Bank to strengthen it external position more rapidly than envisaged last fall. In view of that, the Central Bank has decided that as of Thursday February 6, 2003 and until further notice, the Bank will purchase 1.5 million US dollars every day of the week, Monday through Friday.


February 5, 2003