Iceland’s central bank holds key seven-day term deposit rate at 7.25%

The Monetary Policy Committee of the Central Bank of Iceland left its key seven-day term deposit rate unchanged at 7.25 percent on 4 February 2026, judging that persistent underlying price pressures and still-elevated inflation expectations outweigh the recent easing in economic activity and a cooling labour market. After a cumulative 75 bp reduction between February and November 2025, the policy stance has now been on hold for the past two meetings. Operational rates remain at 9.00 percent for overnight loans, 8.00 percent for seven-day collateralised loans and 7.00 percent for current accounts. Headline inflation rose to 5.2 percent in January, largely because of higher vehicle levies, yet price increases remain broad-based; the Bank’s new forecast shows the output gap closed, GDP growth set to stay relatively weak, and inflation easing later in the year, though sizeable wage hikes keep risks tilted upward. The Committee reiterated that any further rate cuts will hinge on “clear evidence” of progress toward the 2.5 percent target and that upcoming decisions will track developments in activity, prices and expectations.