December 18, 2017 / 9:27 PM / a year ago

Iceland likely to focus monetary policy on currency stability -New PM

COPENHAGEN, Dec 18 (Reuters) - Iceland is likely to focus its monetary policy on stabilising the krona currency to avoid damaging fluctuations, its new left-wing Prime Minister Katrin Jakobsdottir told Reuters on Monday.

Jakobsdottir, 41, is heading a coalition of left and right wing parties in a government installed after the former centre-right government was ousted at a snap election in October.

The former government created a task force to review the monetary policy and it is expected to finish its work in the first half of next year.

“Then, probably, we will make some necessary amendments to the framework of the policy,” Jakobsdottir said in a telephone interview on Monday.

Under the current framework the central bank has a target of keeping the 12-month inflation rate close to 2.5 percent.

“What has been talked about is whether we have to focus more on the stability of the krona,” Jakobsdottir said.

The volatile currency has appreciated since Iceland in the spring scrapped most of the capital controls imposed after a 2008 financial crisis in a move that hurt exports and growth.

“What we are looking at is to mend the framework of the Icelandic krona, because before the economic crisis in 2008 the Icelandic krona was totally floating, and only with the inflation goal,” Jakobsdottir said.

“So we think it is important, really, to see what amendments we can make on the framework for the krona,” she said.

Some, including former finance minister Benedikt Johannesson, have suggested pegging the currency to the euro to avoid fluctuations, emulating a currency model that has worked in Denmark for decades.

“I haven’t thought that was a very viable way for the Icelandic krona. But of course I will wait to see what the results of the committee are,” Jakobsdottir said.

Others have suggested that Iceland simply should enter the European Union and adopt the common currency.

“It is my opinion, and my party’s opinion, and that applies for the other government parties, that Iceland should not enter the EU. That we should stay out of it,” Jakobsdottir said.

Her party, Left-Green movement, emerged as the second-largest in the Oct. 28 election and entered into a coalition with the conservative Independence Party and the Progressive Party from the other side of the political spectrum.

The Independence Party remained the largest party at the election despite a scandal involving the father of the former prime minister and current Finance Minister Bjarni Benediktsson. (Editing by Matthew Mpoke Bigg)

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