The Central Bank of Iceland’s Monetary Policy Committee raised the key interest rate on seven-day term deposits by 0.25 percentage points to 8.00%, citing high inflation and inflation expectations. Four members supported the increase, while one voted to leave rates unchanged. Inflation was 5.3% in July and is forecast to rise further in the coming months before declining relatively quickly in 2027. The bank projects average inflation of 5.4% in 2026, up from 5.2% in its May forecast, although underlying inflation has remained around 4.2% and second-round effects from higher oil and commodity prices have so far been less pronounced than feared. Inflation is expected to return to the 2.5% target in the first half of 2028. The bank lowered its 2026 GDP growth forecast by 0.2 percentage points to 1.4%, reflecting weaker private consumption and reduced marine product exports, while forecasting growth of 1.9% in 2027 and 2.6% in 2028.
2026-08-19Central Bank of Iceland
Central Bank of Iceland raises key interest rate by 0.25 percentage points to 8.00%
The Central Bank of Iceland raised its key interest rate by 0.25 percentage points to 8.00% as inflation and inflation expectations remain high. Inflation is forecast to average 5.4% in 2026 and return to the 2.5% target in the first half of 2028. The bank cut its 2026 GDP growth forecast to 1.4%.