The Central Bank of Iceland’s Monetary Policy Committee cut the Bank’s interest rates by 0.25 percentage points, taking the key rate on seven-day term deposits to 7.50%, with all members voting in favour. Inflation was 4.2% in April and, under the Bank’s new forecast, is expected to remain close to 4% through year-end before easing towards the 2.5% target, although the outlook is described as highly uncertain amid recent global economic turmoil. Domestic demand has cooled under a tight monetary stance, with easing capacity pressures reflected in the housing and labour markets, while activity is still characterised as resilient; wage costs have continued to rise briskly and inflation expectations, though lower, remain above target. The interest rate corridor was set at 9.25% for overnight loans, 8.25% for seven-day collateralised loans, and 7.25% on current accounts. Further rate cuts are conditioned on inflation moving closer to the 2.5% target, and near-term policy will continue to be guided by developments in economic activity, inflation, and inflation expectations.
Central Bank of Iceland 2025-05-21
Central Bank of Iceland lowers key interest rate by 0.25 percentage points to 7.50%
The Central Bank of Iceland's Monetary Policy Committee reduced the key interest rate on seven-day term deposits by 0.25 percentage points to 7.50%, with unanimous support. Future rate cuts depend on inflation nearing the 2.5% target, amid a backdrop of uncertain global economic conditions and resilient domestic activity.