Central Bank discontinues regular foreign currency sales
Effective Monday 3 May 2021, the Central Bank will discontinue its regular foreign currency sales programme.
The Central Bank began selling foreign currency to market makers on a regular basis on 14 September 2020. At that time, the domestic foreign exchange market had been significantly affected by the COVID-19 pandemic. The króna had depreciated markedly because of a reduction in export revenues and financial transactions, and price formation in the foreign exchange market became inefficient as a result. The Bank’s assessment was that, all else being equal, a sustained, increased supply of currency from its international reserves would help to stabilise and deepen the market and improve price formation.
From 14 September 2020 onwards, the Bank sold a total of 453 million euros (71.2 b.kr.) through its regular currency sales programme. Under the programme, the Bank sold 3 million euros per business day to market makers in the foreign exchange market. On 7 April, the Bank reduced the frequency and total amount of the sales by selling currency three days per week instead of five, although the amount sold each time remained the same. Regular sales accounted for 50.8% of the Bank’s total foreign exchange market turnover between 14 September 2020 and 30 April 2021, and 22.2% of total market turnover for that same period.
In view of the appreciation of the króna in recent weeks and improved equilibrium in the foreign exchange market, the Central Bank considers it no longer necessary to sell currency on a regular basis. The regular sales programme will therefore be discontinued beginning next week.
As before, the Bank will intervene in the market in order to mitigate volatility when it considers such intervention warranted, in accordance with the Monetary Policy Committee’s statement of 17 May 2017.
Further information can be obtained from Ásgeir Jónsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.
For further information, see the Bank’s press releases of 9 September 2020 and 31 March 2021.
Press release no. 13/2021
30 April 2021