Neighbours' lifeline buoys Icelandic krona

Bloomberg

Iceland was offered an emergency loan by the central banks of Denmark, Sweden and Norway to shore up the krona and avert an economic collapse. The currency rallied 3.7 per cent against the euro after the banks agreed to provide €1.5-billion ($2.3-billion), which would double the Atlantic island's foreign currency reserves. The krona has dropped as much as 26 per cent against the euro this year on concern Iceland's commercial banks have taken on too much foreign debt, prompting speculation the central bank may have to step in. Support for the currency may enable policy makers to halt a series of interest rate increases. Inflation accelerated to 11.8 per cent in April, the fastest pace in 18 years, even after the key rate increased to a record 15.5 per cent.