The Monetary Policy Committee of the Central Bank of Iceland decided to keep interest rates unchanged, leaving the key interest rate, the seven-day term deposit rate, at 7.50%. The decision was unanimous. Headline inflation was 4% in July and, under the Central Bank’s newly published forecast, is expected to rise in the coming months before easing in early 2026, with the outlook described as highly uncertain. While domestic demand growth has subsided and capacity pressures have eased alongside cooling in housing and labour markets, economic activity is still seen as relatively robust, wages have risen markedly, and inflation expectations remain above target. The Committee judged that conditions for easing the real interest rate have not emerged, and indicated that further rate cuts will depend on inflation moving closer to the Bank’s 2.5% target; near-term policy will be guided by developments in activity, inflation and inflation expectations. The interest rate corridor remains: overnight loans 9.25%, seven-day collateralised loans 8.25%, current accounts 7.25%. Minutes of the MPC meeting of 18-19 August 2025 are scheduled for publication on 3 September 2025.
Central Bank of Iceland 2025-08-20
Central Bank of Iceland holds key interest rate at 7.50% and links future cuts to inflation moving toward 2.5% target
The Central Bank of Iceland's Monetary Policy Committee unanimously decided to maintain the key interest rate at 7.50%, citing robust economic activity and inflation expectations above target. Future rate cuts will depend on inflation aligning closer to the 2.5% target, with near-term policy guided by developments in economic activity, inflation, and expectations.