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 7.25%. All Committee members voted in favour of the decision.
Inflation now measures 5.2% and has risen once again. Although the January increase in the CPI is due largely to changes in public levies on new motor vehicles, price hikes are still relatively widespread. Underlying inflationary pressures therefore continue to be persistent, even though economic activity has eased and there are clear signs that the labour market is cooling.
According to the Central Bank’s newly published forecast, the positive output gap has closed, and the outlook is for GDP growth to be relatively weak and for inflation to taper off as the year advances. Despite a temporary inflation spike at the start of this year, the long-term inflation outlook is broadly unchanged. There is considerable uncertainty, however, as pay rises are still sizeable and inflation expectations remain above target.
Because of this, the MPC considers it appropriate to hold the Bank’s interest rates unchanged. Further decisions to lower interest rates will depend on clear evidence that inflation is falling back to the Bank’s 2½% inflation target.
As before, near-term monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.
No. 2/2026
4. February 2026
The interest rates will be as follows:
- Overnight loans 9.00%
- Seven-day collateralised loans 8.00%
- Seven-day term deposits 7.25%
- Current accounts 7.00%