Federal Reserve Set To Cut Benchmark Rate For Second Time In Two Weeks; Iceland Central Bank Raises Key Interest Rate To 18 Percent

October 28, 2008 6:08 a.m. EST

Washington, D.C. (AHN) - The Federal Reserve and various central banks around the world are set to reduce benchmark interest rates for the second time in two weeks to stem the hemorrhage of investors' funds. But in a dramatic twist, Iceland's Central Bank raised on Tuesday its key interest rate by 6 points to 18 percent.

The decision to cut benchmark rates was made in a Washington meeting last week between the U.S. Federal Reserve and European Central Banks. The measure seeks to further stop the ongoing meltdown in different financial capitals the world over despite massive bailout and stimulus packages made by various governments.

South Korea went ahead and cut on Monday its interest rate by three-fourths of a percentage point.

As stock markets plummet, small and large investors pulled out their funds and instead purchased safer investments like U.S. Treasury bills. The preference for greenback-denominated instruments sent the U.S. dollar's value soaring against major global currencies including the euro and the British pound.

Iceland's decision to raise benchmark interest rates follows its receipt of a $2.1 billion bailout fund from the International Monetary Fund. It will be the highest rate on record for Iceland since its central bank began implementing measures to control inflation in 2001.

The announcement to hike Iceland's interest rate was made through its website, which will explain the rationale behind the unprecedented move at 11 a.m.