Interest rates hoisted to 18% (but don't worry, it's Iceland)

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The move came as a double shock since it is less than fortnight since the country's central bank, the Sedlabanki, slashed rates from 15.5% to 12%. That meant today was a massive U-turn.

But it pretty quickly became clear the increase was the price demanded by the International Monetary Fund in return for its $2 billion loan to prop up Iceland's battered economy.

At the same time, it emerged that Prime Minister Geir Haarde believes this is nothing like enough to bail out his country altogether. He wants another $4 billion and is already going cap in hand to the European Central Bank, US Federal Reserve Bank and neighbouring Nordic central banks in Sweden, Norway, Finland and Denmark for funds.

"It's not a precise number," said Haarde. "It's not a scientific number, but we are looking in that neighbourhood. We are talking about $6 billion altogether."

The central bank said it had in effect been told to raise interest rates to 18% by the IMF. It said: "This decision has been taken with reference to the fact that, with the collapse of three banks and the harsh external measures that followed, Iceland's foreign exchange market became paralysed. It is of over-arching importance to restore stability in the foreign exchange market and support the exchange rate of the krona."

The central bank said it hoped to be able to bring rates down quickly as inflation started to fall.

But analysts were more sceptical. Ben May of Capital Economics said: "Today's move is a step in the right direction but may not be enough on its own. We would certainly not rule out further sharp hikes in the coming weeks and months."