Looking ahead Recovering in the midst of an international financial - PDF document

Rapid adjustment of real economy Hröð aðlögun raunhagkerfis Seðlabanki Íslands Looking ahead – Recovering in the midst of an international financial crisis Svein Harald Øygard Governor, Central Bank of Iceland Samtök verslunar og þjónustu 20. mars 2009 Turnaround in international trade Disinflation process underway Umskipti í utanríkisviðskiptum Verðbólguhjöðnun er hafin 1

The exchange rate has remained broadly stable The risk premium remains high Gengið hefur verið tiltölulega stöðugt Áhættuálag hefur haldist hátt Monetary easing commences Vision for the journey ahead • Removal of • The MPC has voted to lower the policy rate by 1 Real inflationary Economy pressure percentage point to 17 percent • Exports > Imports • Economic indicators suggest that conditions for easing are in place Monetary • Monetary policy for new stability Policy • Gradual easing as stability allows • The fragility of private balance sheets calls for New exchange rate stability growth & • Important steps in the restructuring and re- • Medium-term Fiscal budget stability Policy establishment of the financial system will be adjustments taken in the next few months • The easing cycle must proceed with care • Negotiation processes Financial • Restructuring Markets • Additional rate-setting meeting April 8, 2009 • Recapitalisation Q 1 2009 Q 2 2009 Q 3 2009 Q 4 2009 2010 2

Vision for the journey ahead Vision for the journey ahead • Removal of • Removal of Real inflationary Real inflationary New demand impulses Resources for growth pressure pressure Economy Economy • Exports > Imports • Exports > Imports Capital controls eased as stability is in place Monetary Monetary • Monetary policy for new stability • Monetary policy for new stability Inflation approaching Policy Policy • Gradual easing as stability allows • Gradual easing as stability allows “target level” New New growth growth & & • Medium-term • Medium-term Clarity on State/ Clarity on State/ Fiscal Fiscal Program for “currency budget external debt stability budget external debt stability Policy Policy earning growth” adjustments and debt service adjustments and debt service • Negotiation processes • Negotiation processes A fully A fully Financial Financial Solidified balance sheets • Restructuring operational • Restructuring operational Markets Markets banking system banking system • Recapitalisation • Recapitalisation Q 1 2009 Q 2 2009 Q 3 2009 Q 4 2009 2010 Q 1 2009 Q 2 2009 Q 3 2009 Q 4 2009 2010 Accumulated debts a heavy burden on the State and the country The “blood system of the economy” – the financial system – is weakened and must be cured Economic fundamentals of Iceland are strong and should enable new growth 3