Iceland Bulletin
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
Foreign Exchange

Iceland Bulletin

THE ISK - A YEAR OF TWO HALVES [by bridport & cie, January 5th 2006]

Bridport has long stated that we believe the ISK to be an overvalued currency. The currency remains high (ISK Trade Weighted Index currently at 106.05) and we expect it to remain strong at least until end Q2 06. We see the following factors as supporting the ISK:

 

  • The domestic economy remains overheated and is yet to peak
  • The Central Bank raised interest rates by 225bps in 2005 and this trend will continue through 2006. The interest rate differential will continue to increase until the Central Bank stops the current tightening regime (we see this being end Q2 06)
  • Continued ISK Eurobond issuance

However our overall assessment of the ISK for 2006 is bearish with a house view that the currency (as measured by the TWI Index) will depreciate by at least 12-15% a trend that is likely to start as we enter the second half of the year. The ISK will weaken on:

 

  • The economy adjusting to a new equilibrium following the completion of the aluminum smelters
  • A wide current account deficit - currently at record levels.
Gift this article