Thursday, October 16, 2008

Iceland lowers interest rate to 12 percent

Supplies of foreign currency have dried up on the island of 320,000 people, prompting the government on Tuesday to draw 400 million euros from a swap facility set up with fellow Nordic nations to give it access to euros.

A major problem is that many Icelanders were encouraged to join in the bounty of deregulated markets and a stock market boom in the mid-1990s by buying houses and cars that were financed by 100 percent loans based on a spread of foreign currencies.

The loans, called "Myntkorfulan" or "breadbasket" loans, were immensely popular because of their low interest rates compared to loans based on the then strong krona. But thousands of people are now defaulting as the Icelandic currency plummets.,0,3604972.story

No comments: