The Icelandic krona is continuing its slide against a basket of currencies midweek as the bankruptcy of a budget airline has triggered a recession, prompting the central bank to spring into action. The latest financial crisis comes roughly a decade since the island nation was on the brink of insolvency following the collapse of several major banks that contributed to the global catastrophe.
Wow Air, the nationâs budget airline, recently filed for bankruptcy. Joining a plethora of other European carriers, Wow suffered from fluctuating fuel costs and overcapacity in the industry. Reportedly, Wow tried every avenue to keep its planes in the air, including intensive talks with potential investors, which fell through.
Wow became an integral factor in stimulating the national economy because it was instrumental for the countryâs booming tourist industry.
Its demise came at a terrible time because Icelandâs important fishing industry just completed a disastrous fishing season.
The Central Bank of Iceland decreased its main interest rate by half a point to 4%. It also revised economic from a 1.8% expansion to a 0.4% contraction and projects the unemployment rate will jump from 3.1% to 3.9% this year.
Icelandic officials have hinted that they might intervene and give the economy a boost. In the aftermath of the Great Recession, the federal government has reduced debt and the central bank has added to its foreign currency reserves to ensure they are ready for another economic downturn.
According to a statement from the central bank:
Although the economic contraction will be challenging for households and businesses, the economy is much more resilient than before. Furthermore, monetary policy has considerable scope to respond to the contraction, particularly if inflation and inflation expectations remain close to the target, as is currently envisioned.
So far this year, the krona has cratered just under 4%.
The CAD/ISK currency pair rose 0.11% to 92.20, from an opening of 92.09, at 17:31 GMT on Wednesday. The JPY/ISK advanced 0.55% to 1.1233, from an opening of 1.1173.
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