A delegation from the International Monetary Fund (IMF) expressed concern yesterday that the state-owned Housing Financing Fund (HFF) is preventing the policy rate set by the Central Bank of Iceland to function the way it should.
“We are not planning to abolish the HFF,” Minister of Trade Björgvin G. Sigurdsson told Morgunbladid, when asked what the government’s reaction to IMF’s concerns would be.
The IMF delegation presented the results of their report on economics in Iceland in 2006 to representatives from Iceland’s government and Iceland’s economy yesterday. The report expressed concerns that competition between the banks and the HFF reduced efficient domestic pressure on demand, resulting in short-term interest rates being higher than necessary.
Ingimundur Fridriksson, one of three directors of the Central Bank, said the IMF’s report is meaningful in reviewing HFF’s function in relation to the efficiency of the finance control.
“The IMF’s opinion regarding the HFF reflects the fact that the government has been liable to make mistakes in relation to the HFF and the state’s earnings from the housing loan market for the last few years,” head of the Icelandic Financial Services Association (SFF) Gudjón Rúnarsson said.
The IMF delegation recommended that the HFF’s maximum loans and loan percentage be lowered immediately. IMF also recommended a tight state budget to reduce inflation. With efficient financial control, the outlook for economic growth in Iceland is good, the report concluded.
HFF is the largest issuer of inflation linked bonds in Iceland and its lending activities are confined by law to lending for domestic housing mortgages. Its primary task is to provide loans to individuals, local authorities, companies and non-governmental organizations for the acquisition of private dwellings, as explained on HFF’s website.