In weighing up this decision, interest rate reductions among some of Iceland's trading countries in recent months have also been taken into account. Exchange rate To reiterate, the main objective of monetary policy is price stability. Since the exchange rate is an important determinant of prices, exchange rate stability has been an intermediate objective of monetary policy. During the first four months of last year the króna appreciated somewhat, but this trend was reversed in the middle of June and the currency was under pressure for most of the time until the end of the year. It depreciated by almost 9% from the end of 1999 to the end of 2000. To some extent the depreciation was triggered by fishing quota cutbacks and the resulting deterioration in the economic outlook. Demand for foreign exchange also outstripped supply because of last year's current account deficit, which is estimated at ISK 68.9 billion, as well as heavy investment by Icelanders in foreign securities amounting to almost ISK 40 billion net. Pension funds play the leading role in these investments. By the end of 2000, the real exchange rate of the króna had fallen below its average for the past twenty years. Actions in the foreign exchange market Under the prevailing circumstances, the Central Bank considered it necessary to take action to counter the depreciation of the króna. Besides raising its interest rates, the Bank intervened in foreign exchange markets thirteen times after the middle of 2000 in order to cushion against sharp fluctuations.
•  With these improvements, and generally accommodative external financial conditions, borrowing costs have fallen, capital market access was restored for many countries, and credit growth resumed. Net credit growth to sovereigns has remained moderate, however, as much of the borrowing has gone to refinancing the existing stock of debt on more favorable terms. •  The market for emerging market debt also has matured. There has been more differentiation in the response of spreads, both on the way down as credit fundamentals seemed to improve, and during the recent correction. This progress is indicative of a general increase in the sophistication and skill of economic policy makers in the emerging world, and in the quality of understanding of the benefits of macroeconomic stability and how to achieve it. Many countries benefited from the advice and financial support from the IMF and the multilateral development banks. But the most successful were those with policy makers who were ahead of the Fund and the Bank in diagnosing and addressing their problems, rather than being dragged reluctantly toward a more credible policy stance. These improvements have left the emerging markets as a group less vulnerable to financial crisis than they were in the mid-1990s. The combination of deeper reserve cushions, stronger external positions, improved balance sheets, more flexible exchange rate regimes, and better inflation performance provide a very different setting from what existed the last time we faced a transition after a sustained period of benign financial conditions and low interest rates.