The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to keep the Bank’s interest rates unchanged. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore remain 7.50%. All Committee members voted in favour of the decision.
Headline inflation measured 4% in July, after falling by 0.2 percentage points from the previous month. According to the Central Bank’s newly published forecast, it will rise again in the months ahead but then start to ease in early 2026. The inflation outlook remains highly uncertain, however.
Growth in domestic demand has subsided in line with a tight monetary policy stance. Capacity pressures in the economy have therefore eased, as can be seen in the cooling of the housing and labour markets. Even so, economic activity still appears relatively robust, wages have risen markedly, and inflation expectations remain above target.
Although inflation has eased and inflation expectations have fallen in the recent term, inflationary pressures remain. The conditions that would enable an easing of the real interest rate have therefore not yet emerged. Further interest rate cuts will depend on whether inflation moves closer to the Bank’s 2½% target.
As before, near-term monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.
No. 12/2025
20 August 2025
The interest rates will be as follows:
- Overnight loans 9.25%
- Seven-day collateralised loans 8.25%
- Seven-day term deposits 7.50%
- Current accounts 7.25%