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May 29, 2009, 14:52 GMT

IMF delegation ends Iceland visit, foresees no immediate rate cuts

Reykjavik - There are no immediate prospects for interest rate cuts in Iceland, the head of a visiting delegation from the International Monetary Fund said Friday. Mark Flanagan's remarks were made at the end of a review visit to Iceland that lasted more than a week. In November, the fund approved a 2.1-billion-dollar loan to the North Atlantic nation, which was badly impacted by the global credit crunch. Reykjavik said the central bank, or Sedlabanki, has so far received 830 million dollars. Interest rates are currently at 13 per cent, down from a high of 18 per cent at the end of October 2008. Iceland's main banks were taken over by the government in the wake of the global financial crisis. Unemployment has also surged as a result of the crisis. Flanagan said the rate decision ultimately rested with Iceland's central bank. He concurred with earlier government assessments that the Icelandic economy would contract by some 10-11 per cent this year, with the contraction bottoming out during the second half of the year. Iceland's parliament is currently debating whether to apply for European Union membership. The move is supported by Prime Minister Johanna Sigurdardottir's party, the Social Democratic Alliance. However her coalition partner, the Left-Green Movement, as well as the former ruling party, the conservative Independence Party, have expressed doubts about such a step.

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