The Icelandic Króna (ISK) has dropped by six percent against the euro since the beginning of September, RÚV reports. In a matter of hours on Tuesday morning it fell two percent. The Central Bank used its foreign reserves to prevent an even greater loss.
This was the first time in about 10 months that the bank had to intervene. Jón Bjarki Bentsson, an economist for Íslandsbanki, believes the sharp slowdown in the tourism industry and the financial woes of WOW Air are to blame. The troubled airline is seeking over a 100 million USD in investment over the next year and half. It flies roughly a third of all passengers to Iceland. If it went out of business, that would be a huge disruption to the wider economy. Jón also believes the fall is temporary, and that there is little risk of permanent devaluation.
Finance Minister Bjarni Benediktsson echoed these sentiments in a public statement. He noted that the trade balance with the strong króna is good but its strength is making Iceland less competitive. The Chamber of Commerce voiced caution but pointed out the lessons learned from the 2008-09 financial collapse and the country’s relatively low foreign debt levels will stabilize the currency.
The latest drop in the króna has ominous timing as the tenth anniversary of the financial crisis approaches.