The Monetary Policy Committee (MPC) of the Central Bank of Iceland raised the seven-day term deposit rate by 25 basis points to 8.00%, judging that high inflation and inflation expectations required sufficient monetary restraint despite growing economic slack and a projected rapid inflation decline in 2027; four members supported the move and one preferred no change. Since August 2025, the MPC held the rate at 7.50%, cut it by 25 basis points in November, held it at 7.25% in February, and raised it by 25 basis points in each of March, May and August 2026. Inflation was 5.3% in July and is expected to rise further in coming months before tapering relatively quickly in 2027, while underlying inflation has stabilised and has begun easing by some measures. Headline inflation has been driven mainly by higher public levies and price increases linked to the war in the Middle East, although second-round effects appear less pronounced than initially feared. Uncertainty remains significant, particularly around the global economy and domestic labour market, and future policy will depend on economic activity, inflation and inflation expectations.
2026-08-19Central Bank of Iceland
Central Bank of Iceland Raises Policy Rate by 25 Basis Points to 8.00%
The Central Bank of Iceland’s Monetary Policy Committee raised the seven-day term deposit rate by 25 basis points to 8.00%, with four members supporting the move and one preferring no change. Inflation was 5.3% in July and is expected to rise further before declining relatively quickly in 2027, while future policy will depend on economic activity, inflation and inflation expectations.