The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to lower the Bank’s interest rates by 0.25 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 7.75%. All Committee members voted in favour of the decision.

Inflation measured 4.2% in February, its lowest in four years. The decline in inflation has been broad-based, and underlying inflation has therefore fallen as well. The outlook is for continued disinflation in coming months.

Demand growth has subsided in line with a tight monetary stance, and capacity pressures have eased. By the same token, housing market activity has slowed. Nevertheless, high-frequency indicators could suggest that households have stepped up their consumption spending. In addition, wage costs have continued to rise steeply, and inflation expectations remain above target.

Although inflation has eased and inflation expectations have fallen in the recent term, inflation pressures remain, which calls for a continued tight monetary stance and caution regarding decisions going forward. This is compounded by significant global economic uncertainty.

As before, near-term monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.

No. 4/2025
19 March 2025

The interest rates will be as follows:

1. Overnight loans 9.50%
2. Seven-day collateralised loans 8.50%
3. Seven-day term deposits 7.75%
4. Current accounts 7.50%