Iceland raises key rate by six points to 18 per cent

REYKJAVIK: Iceland's central bank said on Tuesday it had raised its key interest rate by 6.0 points to 18 percent as the country battles to avoid a national bankruptcy.

"The board of governors of the central bank of Iceland has decided to raise its policy interest rate by 6 percentage points to 18 percent," the bank said, adding it would issue a statement motivating the decision later Tuesday.

The rate level is the highest in Europe.

Iceland's once booming financial sector has collapsed under the weight of the worldwide credit crunch, forcing the government to take control of the major banks as its currency has nosedived.

Reykjavik agreed with the International Monetary Fund last week on a loan of 2.1 billion dollars (1.6 billion euros) but Haarde said on Monday that Iceland would need about four billion dollars more.