Central Bank to Respond to COVID-19 Skip to content

Central Bank to Respond to COVID-19

By Ragnar Tómas

Central Bank Ásgeir Jónsson seðlabankastjóri
Photo: Photo: Golli. Current Central Bank Governor, Ásgeir Jónsson.

Iceland’s Central Bank is preparing a response to the COVID-19 epidemic, RÚV reports. As noted today by the Department of Civil Protection and Emergency Management, four new cases of COVID-19 have been confirmed, bringing the total of confirmed cases to twenty (all of the individuals were infected abroad).

The Central Bank

In an interview with RÚV, Ásgeir Jónsson, Governor of the Central Bank, stated that the bank would be taking measures to counteract the economic effects of COVID-19 “very soon” and that a further lowering of interest rates is to be expected.

The US has already taken action, with the Federal Reserve lowering interest rates this week in response to the epidemic. The Bank of England has stated that it is also prepared to cut interest rates to soften the impact of the Coronavirus.

In Iceland, a council of ministers on financial stability convened yesterday to discuss the possible effects of COVID-19.

Fully Prepared for Crises

Governor Ásgeir Jónsson stated that central banks must keep three things in mind during unexpected crises. First, central banks must monitor foreign exchange reserves with an eye to ensuring the continued viability of the exchange market. Iceland’s economy is in a favourable position in this regard, according to Ásgeir, as last year’s current-account surplus equalled ISK 172 billion ($1,343,652,304 / €1,208,763,041).

Second, central banks must attend to the economy’s liquidity. “We will try to ensure that the country’s financial corporations will be able to support their clients, that they will be able to provide support even if their clients’ revenues don’t cover costs for a period of a few months. We have already prepared specific measures with this in mind.”

Third, longer-term economic interventions, such as the lowering of interest rates, can be taken by central banks. When precisely the Central Bank will resort to such measures will be determined by future developments.

A Rough Quarter for Tourism

Ásgeir added that the economic effects of COVID-19 are already being felt and that the Central Bank expects a considerable contraction in the tourism sector during the second quarter while remaining hopeful that the worst will have past by the commencement of the third quarter.

“It’s not good for the tourism sector to lose the third quarter. We can survive such a crisis without it leading to any instability; however, the longer that this drags out, the greater the economic impact. But, of course, we can handle it.”

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