The Monetary Policy Committee of the Central Bank of Iceland lowered the Bank’s interest rates by 0.5 percentage points, taking the key rate on seven-day term deposits to 8.0%. The decision was unanimous. Inflation fell to 4.6% in January, with underlying inflation at its lowest in three years, and the outlook is for further disinflation in the coming months. Demand growth has subsided under a tight monetary stance, the positive output gap is narrowing, and housing market activity and house price inflation have cooled, although there are indications that activity is stronger than preliminary national accounts figures imply and wage costs continue to rise. The Committee noted that inflation pressures remain and that elevated global economic uncertainty warrants continued tightness and caution in future decisions; near-term policy will continue to be guided by developments in economic activity, inflation and inflation expectations. The new rates are 9.75% on overnight loans, 8.75% on seven-day collateralised loans, 8.0% on seven-day term deposits and 7.75% on current accounts.
Central Bank of Iceland 2025-02-05
Central Bank of Iceland cuts key interest rate by 50 bps to 8.0% as inflation continues to ease
The Monetary Policy Committee of the Central Bank of Iceland unanimously reduced the key interest rate on seven-day term deposits by 0.5 percentage points to 8.0%, amid falling inflation and a cooling housing market. Despite these trends, the Committee emphasized ongoing inflation pressures and global economic uncertainty, indicating that future policy will remain cautious and responsive to economic developments.