Iceland’s sovereign credit rating soared during the years before the crisis, and Icelandic banks’ credit ratings followed in its wake. In fact, perhaps they rose higher than was warranted and was good for us. In spite of the ensuing nosedive, we managed to keep the sovereign rating on the bottom rung of investment grade, apart from two years in Fitch Ratings’ speculative category after the first Icesave referendum. Keeping Iceland’s ratings in the investment-grade category cost an incredible amount of effort, and other countries that have gone on an IMF programme in recent years have seen their ratings from Moody’s and S&P fall to speculative grade. Some of them have managed to rise up faster than Iceland has, however. Studying the rating agencies’ reports shows which factors will be most important in order to improve Iceland’s sovereign rating and thereby pave the way for the banks to follow suit. Among them are continued reduction of public debt levels and sound, focused economic policy that provides stability throughout the ongoing upswing. The liberalisation of the capital controls is an extremely important factor, but it could work both ways. Successful moves towards liberalisation without jeopardising stability will have a positive effect, but disturbance of economic and financial stability will do the opposite. My assessment of this, and of conversations with the rating agencies, is that it is probably not realistic to expect an improvement in our sovereign rating in the very near term.
Már Guðmundsson: Economic outlook, monetary policy, and credit ratings Speech by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, at the Chamber of Commerce Monetary Policy Meeting, Reykjavik, 6 November 2014. *  *  *  Madame Chairman, honoured guests, The Iceland Chamber of Commerce has a long-standing tradition of holding a meeting like this one on economic developments and prospects and monetary policy. The meeting is held following the publication of the Central Bank’s autumn forecast and, in latter years, the Monetary Policy Committee’s interest rate decision. It often has an additional specific topic, and on this occasion, our hosts have expressed an interest in the outlook for credit ratings. I will touch on that towards the end of my talk today, but as I usually do, I will focus mainly on monetary policy and the current and future economic situation. The big picture regarding the economy is this: the recovery that began in Q2/2010 is now well enough advanced that the slack in the economy is almost fully absorbed. The domestic economy has seldom been as well balanced as it is now. There is internal equilibrium, in that inflation has been at or below target for nine months and output is close to capacity. And there is external equilibrium, in that we have had a sizeable current account surplus that covers net capital outflows with room to spare, as the Central Bank has bought foreign currency for a total of 95 b.kr., or 5% of GDP, so far this year.