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 8.00%. All Committee members voted in favour of the decision.
Inflation has risen still further since the summer, as was expected. It now measures 5.9%, its highest in two years. The increase in headline inflation is driven mainly by the effects of the Middle East conflict and hikes in public levies. Underlying inflation, however, has held relatively flat for some time, at just over 4%.
Although economic activity has clearly begun to slow, both measured and underlying inflation are still too high, as are inflation expectations. Nevertheless, most indicators suggest that inflation will fall fairly rapidly in 2027, although there is considerable uncertainty, especially as regards developments in the global economy and the domestic labour market.
In view of this uncertainty and the persistence of inflation and inflation expectations, the MPC considers it appropriate to maintain a tight monetary stance. As before, monetary policy formulation will be determined by developments in economic activity, inflation, and inflation expectations.
No. 10/2026
October 7 2026