The Central Bank of Iceland published minutes of the Monetary Policy Committee’s Aug. 17-18 meeting, detailing its decision to raise the key rate by 0.25 percentage points to 8%. The majority favored tightening because inflation remained well above target, inflation expectations were high and the risk of second-round effects persisted, including from a possible wage agreement review later in 2026. The committee also noted that underlying inflation had stabilized or eased by some measures, domestic demand had weakened and labor market slack was increasing. One member opposed the increase, arguing that the existing restrictive stance was transmitting effectively to market rates, consumption and employment. The bank forecasts headline inflation of 5.6% in the third quarter and 5.7% in the fourth quarter, before it falls below 3% late in 2027 and returns to target in the first half of 2028, conditional on the forecast interest rate path. The next Monetary Policy Committee statement is scheduled for Oct. 7, 2026.
2026-09-02Central Bank of Iceland
Central Bank of Iceland minutes reveal split over August key rate increase to 8%
Central Bank of Iceland minutes detail the Monetary Policy Committee’s split decision to raise the key rate by 0.25 percentage points to 8% in August. The majority cited above-target inflation, elevated expectations and second-round risks, while one member favored holding rates given weakening demand and growing labor market slack.