On Nov. 20, 2007, Standard&Poor's Ratings Services revised its outlook on the sovereign credit ratings on the Republic of Iceland to negative from stable. At the same time, the 'A+/A-1' foreign currency and 'AA/A-1+' local currency issuer credit ratings were affirmed. The outlook revision reflects the continued build-up and persistence of macroeconomic imbalances in the Icelandic economy, compounded by an insufficiently tight fiscal policy. Although the central bank's short-term real interest rate has risen to over 8%, the effectiveness of monetary transmission is constrained by the rapid rise in foreign currency borrowing by households and the weak reaction of mortgage rates to monetary tightening. A renewed surge in consumption and delayed export growth imply that the current account
