- Board of Governors of the Central Bank of Iceland decides 3.5% policy rate reduction

The Icelandic economy has been subjected to unprecedented turbulence in the
past few weeks. The Icelandic banking system has not been able to withstand the
trials it has faced as a result of difficult market conditions, global
deterioration of confidence in economic affairs, and domestic risk appetite. 

A variety of jobs have disappeared virtually in the blink of an eye, demand has
declined precipitously, and by all measures, expectations are at a low ebb. The
impact of the collapse of the banking system will be extremely burdensome and
the accompanying economic contraction very sharp. 

Preliminary forecasts are coloured by these factors. 

The Board of Governors has engaged in informal discussions with representatives
of the private sector, as well as with a number of other parties, and has
reviewed this grave situation. 

As a result, the Board of Governors has decided to lower the policy interest
rate by 3.5% effective immediately. The policy rate will be 12%. The next
policy interest rate decision date is November 6, 2008.