Central Bank of Iceland

The Central Bank of Iceland is an independent institution owned by the State. The Act on the Central Bank of Iceland, no. 92/2019, stipulates that the Bank shall promote price stability, financial stability, and sound and secure financial activities. The Bank’s activities fall within the purview of the Prime Minister, but matters relating to financial stability and financial markets are administered by the Ministry of Finance and Economic Affairs. In addition to the above-listed roles, the Bank shall undertake such tasks as are consistent with its role as a central bank, such as maintaining international reserves and promoting a safe, effective financial system, including domestic and cross-border payment intermediation.

The Bank is also required under the Central Bank Act to promote the implementation of the Government’s economic policy as long as it does not consider such policy inconsistent with the Bank’s objectives.

Price stability

According to the joint declaration issued by the Government of Iceland and the Central Bank of Iceland on 27 March 2001, the Bank shall aim at a rate of inflation, measured as the twelve-month increase in the consumer price index (CPI), of as close to 2½% as possible. The Act on the Central Bank of Iceland grants the Bank full independence in applying its monetary policy instruments so as to achieve the price stability objective.
These monetary policy instruments are the Bank’s interest rates, facilities for credit institutions (apart from loans of last resort), minimum reserve requirements, foreign exchange market transactions, and securities transactions. A five-member Monetary Policy Committee (MPC) takes strategic decisions on the application of the Bank’s monetary policy instruments.


Financial Stability

Financial stability means that the financial system is equipped to withstand shocks to the economy and financial markets, to mediate credit and payments, and to diversify risks appropriately. The Financial Stability Committee (FSN) of the Central Bank of Iceland takes decisions on the application of the Bank’s financial stability policy instruments. The Committee is tasked with assessing the current situation and outlook for the financial system, systemic risk, and financial stability; defining the measures necessary to ensure financial stability; and deciding which entities, infrastructure elements, or markets shall be considered systemically important. When warranted, the FSN may make recommendations to the appropriate Governmental authorities concerning the measures needed to strengthen and preserve financial stability.


Sound and secure financial activities

The Central Bank is responsible for the tasks entrusted by law and Governmental directives to the Financial Supervisory Authority, which is now part of the Central Bank. The Bank shall monitor supervised entities to ensure that their activities are in compliance with the law and with Governmental directives, and that they are in other respects consistent with sound and appropriate business practices; cf. the Act on Official Supervision of Financial Activities; cf. Article 2, Paragraph 4 of the Act on the Central Bank of Iceland, no. 92/2019.
Decisions entrusted to the Financial Supervisory Authority by law or Governmental directive are taken by the Central Bank of Iceland or by the Bank’s Financial Supervision Committee; cf. Article 3, Paragraph 2 of Act no. 92/2019.



The Markets Department oversees the domestic money market and currency market, as well as undertaking transactions with domestic financial institutions. It manages the Bank’s international reserves and oversees government debt affairs, as well as Treasury guarantees and relending. The Department also oversees communications with the foreign financial institutions with which the Central Bank and the Treasury conduct business. Furthermore, it administers the Bank’s interbank payment system, as well as overseeing domestic and cross-border payments for the Bank, the Treasury, and State enterprises.