Foreign exchange market, exchange rate developments, and international reserves 2020
The króna depreciated by 10.4% in 2020, and turnover in the interbank foreign currency market increased by 124% year-on-year. The domestic foreign currency market was strongly affected by the COVID-19 pandemic, and the Central Bank conducted large-scale trades in the market to mitigate volatility and improve price formation.
The Bank’s net foreign currency sales in the market totalled 132.7 b.kr. during the year. The exchange rate fell most in March, after the first cases of COVID-19 were diagnosed in Iceland, but it was more stable in the months thereafter. The pension funds’ decision to suspend currency purchases for foreign investment played an important role in maintaining exchange rate stability. The Bank also conducted foreign currency trades due to large capital transactions by foreign investors in connection with sales of domestic securities and offshore króna. At the year-end, the Bank’s international reserves totalled 816.7 b.kr., or 30% of GDP.