The Central Bank of Iceland raised its key interest rate to 8.00% as headline inflation increased to 5.3% in July and remained above its forecast. Its latest Monetary Bulletin projects inflation will be somewhat higher in 2026 than forecast in May, although it still expects inflation to decline rapidly during 2027 and return to target in the first half of 2028. The bank lowered its 2026 gross domestic product growth forecast by 0.2 percentage points to 1.4%, reflecting weaker-than-expected private consumption and reduced marine product exports, partly offset by stronger data center export revenues. Growth is projected to rise to 1.9% in 2027 and 2.6% in 2028, while economic slack is expected to reach just under 1% of potential GDP in 2026. Risks include geopolitical and trade uncertainty, a possible wage agreement review, stronger second-round effects from oil and commodity price shocks, and potentially faster disinflation if domestic slack grows.
2026-08-19Central Bank of Iceland
Central Bank of Iceland raises key interest rate to 8.00% as inflation remains elevated
The Central Bank of Iceland raised its key interest rate to 8.00% as inflation reached 5.3% in July. It cut its 2026 GDP growth forecast to 1.4% but continues to expect inflation to return to target in the first half of 2028.