The Monetary Policy Committee (MPC) of the Central Bank of Iceland unanimously held the key interest rate, the rate on seven-day term deposits, at 8.00% in October, judging a tight monetary stance appropriate because inflation and inflation expectations remain too high despite a clear slowdown in economic activity. Over the past year, the rate was cut by 25 basis points to 7.25% in November 2025, then raised in three 25-basis-point steps from March through August 2026 to 8.00%. Central bank facility rates range from 7.75% on current accounts to 9.75% on overnight loans, while the total reserve requirement is 3.00% from October 21. Headline inflation has risen to 5.9%, its highest in two years, mainly because of the Middle East conflict and higher public levies, while underlying inflation has remained just above 4%. Most indicators suggest inflation will fall fairly rapidly in 2027, but uncertainty remains considerable, particularly around the global economy and domestic labour market. The MPC said policy will continue to depend on economic activity, inflation and inflation expectations.
Central Bank of Iceland Holds Key Interest Rate at 8.00%
The Central Bank of Iceland’s Monetary Policy Committee (MPC) unanimously held the seven-day term deposit rate at 8.00% in October, citing inflation and inflation expectations that remain too high despite slowing economic activity. Headline inflation reached a two-year high of 5.9%, while underlying inflation remained just above 4%, although inflation is expected to decline fairly rapidly in 2027.