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Economic Focus - Where is the Króna Headed?

Author: Thorhallur Asbjornsson Author Ranking Blue | Posted: 24-04-2008 | Comments: 0 | Views: 1 | Rating:  (100) Article Popularity - Blue (?) Got a Question? Ask.
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Kaupthing Research has issued an economic analyze for the outlook for the Icelandic Króna. The conclusion is: Good long-term outlook, but difficult short-term.

The ISK exchange rate bears the hallmarks of an overshooting that will readjust itself in the longer term.

In the short term, however, the króna faces greater uncertainty than before and the immediate direction of the krona is not necessarily up.

Near term developments will principally be determined by two factors. Firstly the funding conditions of Icelandic Banks. Secondly, whether CBI measures, such as the issue of CDs and increases in currency reserves will help normalizing the swap interest rate in the currency market.

In Kaupthing Research's opinion, the current ISK exchange rate is an overreaction when looking at the longer term. We therefore forecast that the ISK trade-weighted index will reach 135 points at the end of this year and remain at this level during 2009- 2010. One of the factors that supports this prediction is that it tallies quite well with the average real ISK exchange rate and the foreign trade surplus. In the short term, however, the ISK exchange rate could remain fragile, at least until liquidity has been restored to the currency market.

About Kaupthing Bank

Kaupthing Bank is a Northern European bank offering integrated financial services to companies, institutional investors and individuals. These services include corporate and retail banking, investment banking, capital markets services, treasury services, asset management and comprehensive wealth management for private banking clients.

The Bank operates in all of the Nordic countries (Denmark, Finland, Iceland, Norway and Sweden) and in 6 countries in mainland Europe (the UK, Luxembourg, Belgium, Switzerland, Germany and the Isle of Man), as well as the US, the Dubai International Financial Centre (DIFC) and the Qatar Financial Centre (QFC). In Denmark, Kaupthing Bank operates under the name FIH Erhvervsbank. As of 31 December 2007 the number of full-time equivalent positions was 3,334 at Kaupthing Bank and its subsidiaries. www.kaupthing.com

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Thorhallur Asbjornsson is an economist for Kaupthing Bank.

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