The Icelandic Treasury has ISK 50 billion surplus in reserves with the Central Bank of Iceland, reports news station NFS.
This corresponds to approximately 5 per cent of the GDP of Iceland in 2005 according to numbers available at Statistics Iceland.
In addition, the Treasury also has in reserves the proceeds of the sale of Síminn, the formerly state-owned telecommunications company which was sold for approximately ISK 70 billion last year, said NFS.
According to NFS, the Treasury does therefore not need to issue any new debt, and the financial “leeway” it has will be used to “stimulate the financial markets through the National Debt Management Agency.”
There is now a lack of supply of bonds in the market, said NFS, which counteracts the need for the higher interest rates which the Central Bank desires to achieve.
The government will be intervening in the market and converting index loans of long duration to shorter duration, non-indexed loans. Because of the strong position of the Treasury, this will be possible without issuing any new debt, said NFS.
An unnamed expert in the fixed income market was quoted on NFS saying these proposed measures would have a good effect on the bond market.