The Icelandic króna has enjoyed its most stable exchange rate in four years this summer, Kjarninnreports. According to an analysis of the exchange market that Íslandsbanki bank published on Thursday, this welcome stability is thought to be due to several factors, not least of which is increased confidence in the Icelandic economy.
The analysis compiled the króna’s exchange rate on a quarterly basis over the last year, which has been relatively stable over the summer, even as capital controls have largely been lifted and the Central Bank is no longer on the exchange market. The report indicates that the exchange rate has not be characterized by trends in the last quarters, but rather that the króna has fluctuated in relation to the average exchange rate of foreign currencies within a range of 7% since August of last year.
Even so, Íslandsbanki did add that short-term fluctuations in the exchange rate have increased in July and that volatility was at its highest since September 2017. Still, the exchange rate was largely the same at the end of the month as it was at the beginning.
Íslandsbanki’s report gives three reasons for the króna’s unusual exchange rate stability. For one, there has been a good balance between the inflow and outflow of currency of late. Icelandic investors have been investing considerable sums abroad, while foreign investment in Iceland has also increased somewhat. Secondly, they point out that there are still controls imposed on the movement of currency, for instance, the Central Bank’s so-called capital flow management measures which impose heavy duties on foreign entities which may want to invest in króna bonds. And third, the stability can be attributed to an increased trust in Iceland’s national economy, which can be traced to a significantly improved standing abroad, lower household, corporate, and public debt, higher credit ratings, increased patience towards short-term fluctuations, and a reduced likeliness of capital flight.