Iceland's central bank has raised interest rates by a massive 6 percentage points to 18 per cent.

The move by the Sedlabanki comes just two weeks after it had eased policy to soften the blow from the country's financial meltdown.

Two weeks ago, it cut rates by 3.5 points to 12 per cent.

The island nation's financial system has all but collapsed since the country was forced to take over three of its biggest banks.

The Icelandic government and the head of the Sedlabanki have faced calls to resign for failing to avert the crisis.

The country has said it needs another £2.55 billion in loans on top of the £1.27 billion it wants from the International Monetary Fund.

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