Iceland hikes interest rate to 15 per cent

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Iceland has been forced into a surprise interest-rate hike in what its central bank called a "crucial" move to reverse the country's weakening currency and battle rising inflation.

The Central Bank of Iceland yesterday raised interest rates by 1.25 percentage points to 15 per cent after an emergency meeting. The move is bad news for the country's largest banks, some of whom have thousands of customers with savings accounts in the UK. It represents a U-turn of the policy outlined in November, when Iceland's central bank said it would leave rates alone until June at the earliest.