Iceland and the International Monetary Fund set at positive 2-3 percent by 2010. Additionally Iceland determined that it would not support the losses of its pension funds and social service programmes in order not to take up additional obligations. One of the primary objectives of the Icelandic government in seeking an IMF programme was to stabilize the ISK and to set a path for its gradual appreciation. To stabilize short term pressures on the ISK the Central Bank of Iceland raised interest rates to 18% and prepared to back the krona with its foreign reserves, specifically for which Iceland asked for an IMF programme . The
Monetary policy variable or device which the central bank uses to pin down expectations of private agents about the nominal price level or its path or about what the central bank might do with respect to achieving that path. Monetary regimes combine long-run nominal anchoring with flexibility in the short run. Nominal variables used as anchors primarily include exchange rate targets, money supply targets, and inflation targets with interest rate policy. In practice, to implement any type of monetary policy the main tool used is modifying the amount of base money in circulation. The monetary authority does this by buying or selling