The Monetary Policy Committee of the Central Bank of Iceland decided to lower the Bank’s interest rates by 0.5 percentage points, taking the key policy rate on seven-day term deposits to 8.0%. The decision was unanimous. The Committee pointed to continued disinflation, with headline inflation falling to 4.6% in January and underlying inflation easing to its lowest level in three years, with further declines expected in coming months. It also noted weaker demand growth, a narrowing positive output gap, and softer housing market activity and house price inflation, while highlighting signs of stronger-than-implied activity in preliminary national accounts and continued wage cost growth. Despite lower inflation and inflation expectations, it judged inflation pressures to persist, warranting a continued tight monetary stance and caution amid elevated global uncertainty; the updated rate schedule sets overnight loans at 9.75%, seven-day collateralised loans at 8.75%, current accounts at 7.75%, and seven-day term deposits at 8.0%.
Central Bank of Iceland 2025-02-05
Central Bank of Iceland cuts key interest rate 50bp to 8.0%
The Monetary Policy Committee of the Central Bank of Iceland unanimously reduced the key policy rate on seven-day term deposits by 0.5 percentage points to 8.0%, citing continued disinflation and weaker demand growth. Despite lower inflation, the Committee maintained a tight monetary stance due to persistent inflation pressures and global uncertainty, with updated rates for overnight loans at 9.75%, seven-day collateralised loans at 8.75%, and current accounts at 7.75%.