Economic statistics - 01.11.1993, Qupperneq 5

Short-term nominal yield
1992 1993
25.0
20.0
15.0
10.0
5.0
strengthened by 1 per cent, as measured by the foreign
exchange rate index.
Monetary developments
in November, commercial banks and savings banks
in lceland lowered their lending rates by 1.9-2.1 per-
centage points. This was their response to recent mea-
sures taken by the government and the Central Bank.
The aim of these measures was to break the existing
deadlock on the market and reduce the level of real
interest rates in order to improve the economic climate
and the prospects for growth.
On 29 October, the government stated, that it would
not accept any offers for long-term Treasury bonds with
a real yield above 5 per cent. Rather than consenting to
a hígher yield, if its financing needs might not be satis-
fied on the domestic market on these terms, the
government said it would make recource to the inter-
national financial market. The Central Bank supported
this by announcing that it would act through the
secondary market to lower interest rates. The Central
Bank also announced on 8 November that it would
lower the reserve requirement of commercial banks
and savings banks by 1 percentage point on liquid
deposits - to 4 per cent -, and by 2.5 percentage points
on deposits with a blocking period of more than 3
months - to 2.5 per cent. The Central Bank will also
lowertheir liquidity requirement by 2 percentage points,
from 12 to 10 per cent, as well as widen the definition of
assets qualifying as liquid, in order to increase liquidity
and improve their operating conditions.
The announcement of the government and subsequent
action by the Central Bank has resulted in a 2.6 percent-
age points fall in the interest rate of long-term Treasury
papers on the secondary market. These developments
were - as mentioned above - followed by the banks. The
real interest rate of indexed bank loans are now at their
lowest level from 1987, or 7.5 per cent on average. The
Long-term real yield
10.5
10.0
9.5
9.0
H.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
1993