The Central Bank of Iceland published minutes of its Monetary Policy Committee’s October 5-6 meeting, showing unanimous support for the decision announced on October 7 to keep the key interest rate at 8%. Members judged that previous rate increases were restraining demand and cooling the labour market, while inflation and inflation expectations remained too high to ease the monetary stance. Headline inflation reached 5.9% in September, its highest level in two years, driven mainly by the effects of the war in the Middle East and increases in public levies. Underlying inflation remained broadly stable at 4.4%. Weaker private consumption, rising unemployment and slower wage growth supported the case for holding rates steady. Higher market interest rates and borrowing costs also indicated that earlier policy tightening was reaching households and businesses, with its effects still emerging. The committee continued to expect inflation to fall fairly rapidly in 2027 but judged risks to be tilted to the upside. Elevated inflation expectations, uncertainty over wage agreements and global energy prices, and risks surrounding public finances could delay disinflation. Members considered the current rate sufficient to reduce demand and inflationary pressures, while stressing that policy should respond if inflation, expectations or wages indicated insufficient restraint. The next monetary policy statement is scheduled for November 18, 2026.
Central Bank of Iceland minutes show unanimous support for holding key rate at 8% as demand slows
Central Bank of Iceland minutes show that all Monetary Policy Committee members supported the October decision to hold the key rate at 8%, citing slowing demand and a cooling labour market. September inflation of 5.9% and elevated inflation expectations warranted continued restraint, although underlying inflation remained broadly stable. Members expected fairly rapid disinflation in 2027 but highlighted upside risks from energy prices, wage agreements and public finances.