The Central Bank of Iceland unexpectedly raised its seven-day term deposits rate by 25 bps to 4.5 percent on November 7th of 2018. It was the first rate hike since November 2015, saying inflation expectations rose above target and inflation is expected to exceed the target of 2.5 percent for next year, as a result of higher oil prices and depreciation of the króna. Also, although GDP growth in 2017 and in the first half of 2018 was stronger than initially thought, growth in economic activity is expected to slow faster than previously estimated. Policymakers said that if inflation expectations remain persistently at a level above the target, they will call for a tighter monetary stance in order to keep inflation at the target on the long run. Interest Rate in Iceland averaged 7.64 percent from 1998 until 2018, reaching an all time high of 18 percent in October of 2008 and a record low of 4.25 percent in February of 2011.
Interest Rate in Iceland is expected to be 4.50 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate Interest Rate in Iceland to stand at 4.50 in 12 months time. In the long-term, the Iceland Interest Rate is projected to trend around 4.25 percent in 2020, according to our econometric models.