The Central Bank of Iceland’s Monetary Policy Committee raised the seven-day term deposit rate by 25 bp to 7.75 percent on 20 May 2026, citing a deteriorating inflation outlook—headline inflation has stayed above 5 percent this year and stands at 5.2 percent—and a further pickup in short-term inflation expectations amid still-persistent domestic pressures and higher oil and commodity prices. After cutting the key rate by a cumulative 100 bp between February and November 2025 and then lifting it by 25 bp in March 2026, the Committee has now delivered a second consecutive hike. The latest staff forecast points to weaker GDP growth and higher unemployment than projected in February, while capacity constraints have receded. Externally, the surge in global energy and commodity prices linked to the conflict in the Middle East is feeding into domestic costs and risks further inflation if oil market disruptions persist. The MPC reiterated that it stands ready to tighten policy further to secure convergence of inflation toward its 2½ percent target, even at the expense of additional cooling in economic activity.
Central Bank of Iceland2026-05-20
Central Bank of Iceland raises seven-day term deposit rate by 25 basis points to 7.75 percent
Central Bank of Iceland’s Monetary Policy Committee lifted the seven-day term deposit rate by 25 bp to 7.75 % in a second straight hike, citing persistent domestic pressures, higher energy costs and inflation at 5.2 %. The MPC warned it may tighten further despite forecasts for weaker GDP growth and rising unemployment to steer inflation back to the 2.5 % target.