Iceland hikes interest rate to 18 percent

LONDON (AP) -- Iceland's central bank raised its key interest rate Tuesday by a stunning 6 percentage points to 18 percent.Iceland has seen its currency plunge in recent weeks after its banking sector collapsed in October. An increase in interest rates will make its currency more attractive to foreign investors, thereby helping its value.
"It is of overarching importance to restore stability in the foreign exchange market and support the exchange rate of the krona," the country's central bank, or Sedlabanki, said in a statement.
Sedlabanki also revealed that the rate increase was one of the conditions the International Monetary Fund had insisted on in exchange for giving Iceland a $2 billion loan, which was agreed to last week.
Prime Minister Geir Haarde said separately on Tuesday that Iceland will need $4 billion in financial support on top of the $2 billion loan package announced by the International Monetary Fund. Icelandic officials are in talks with Nordic governments to secure such aid.