. but fortunately, this has changed. i stand here as the head of a new central bank created by the merger with the financial supervisory authority, which took effect on 1 january 2020 – a central bank with explicit authorisations and a vast range of tools at its disposal to ensure both price stability and financial stability through measures focusing on monetary policy, macroprudential policy, and financial supervision. although barely three months have passed since the merger took effect, it has already demonstrated its value. we, the employees of the new bank, have been able to respond, swiftly and in a coordinated manner, to the threat posed by the covid - 19 pandemic. the application of the bank ’ s policy instruments is in the hands of three committees comprising both internal and external members, which take decisions jointly by majority vote. these committees – the monetary policy committee, the financial stability committee, and the financial supervision committee – have clearly defined objectives, as well as policy instruments to achieve them. they take independent decisions that they must account for publicly. this arrangement ensures both transparency and distribution of power. in addition, three deputy governors have taken office – in the fields of monetary policy, financial stability, and financial supervision – in order to ensure even more fully that the authority for decisions on application of policy instruments is distributed effectively. there has been complete consensus among us four governors, as well as the other members of the bank ’ s three committee, in our support of the measures taken in response to the covid19 threat, and we have met at very short notice to discuss and approve measures when necessary. the central bank of iceland stands together as a cohesive and united whole in the tasks that lie ahead. unlike many other western central banks, the central bank of iceland has considerable scope for policy action, as interest rates here are higher than in many other economies and the capital requirements made of the banks are much more stringent than they are elsewhere. and we have used the scope this has provided us. in the past two weeks, the bank has lowered interest rates by a full percentage point. its key rate is now 1. 75 %, and we can lower it still further. we have lowered the banks ’ liquidity reserve requirements, easing their liquidity position by 40 b. kr. we are ready to inject more liquidity into the system if the need arises. 2 / 4 bis central bankers'speeches furthermore, we have lifted the 2 % countercyclical capital buffer on financial

institutions. the buffer has been reset to 0 % and will remain there for at least the next two years. lifting the countercyclical capital buffer requirement will make it easier for the banking system to support households and businesses by creating the scope for new lending in an amount ranging up to 350 b. kr., or 12. 5 % of the current loan portfolio, all else being equal. moreover, it was decided this past sunday, at an extraordinary meeting of the monetary policy committee, to begin direct purchases of treasury bonds in the secondary market. this will both support fiscal policy and ensure that lower interest rates are transmitted out the entire yield curve, thereby lowering households ’ and businesses ’ financing costs, which is the bank ’ s objective. honoured guests : in iceland ’ s campaign for independence, currency issues were never mentioned. it was automatically assumed that iceland would continue to participate in the nordic currency union as an independent member, as the norwegians had done after separating from sweden in 1905. participation in nordic currency cooperation was actually written into the agreement made when iceland was granted sovereignty in 1918. this currency cooperation was based on the gold standard, as were most of the world ’ s currencies at that time. however, the nordic currency union fell apart during the post - war years, and icelanders were forced to rely on themselves as they endured the shocks that pummelled the country during its first years of sovereignty. and we ’ ve been on our own ever since. iceland has a number of unique characteristics that complicate economic policy. the economy is extremely small. its export sectors are homogeneous and prone to cyclical fluctuations. most of its financial markets are relatively shallow and illiquid, which complicates price formation. not only is our currency small, it is also bordered on both sides by two of the largest currency areas in the world – which cannot but make independent monetary policy conduct more difficult. and there are other factors as well. icelanders demonstrate a decided herd mentality in their consumption decisions, which causes wide fluctuations in private consumption. with its small population, iceland has a limited number of workers to do all that is needed – operate the healthcare, education, and administrative systems – and conduct monetary policy as well. anyone discussing iceland ’ s monetary policy concerns is bound to acknowledge these problems. on the other hand, it is clear that the greatest problems facing domestic monetary policy do not stem from the structural flaws inherent in iceland ’ s history and geographical characteristics – flaws