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 are made in response to various market indicators in an attempt to forecast economic trends and in so doing keep the market on track towards achieving the defined inflation target. For example, one simple method of inflation targeting called the Taylor rule adjusts the interest rate in response to changes in the inflation rate and the output gap. The rule was proposed by John B. Taylor of Stanford University. The inflation targeting approach to monetary policy approach was pioneered in New Zealand. It has been used in Australia, Brazil, Canada, Chile, Colombia, the Czech Republic, Hungary, New Zealand, Norway, Iceland,