The Central Bank of Iceland lowered its rate on seven-day term deposits by 25bps to 3.5 percent during its August meeting, saying the GDP growth outlook for 2020 has deteriorated on the back of the strong contraction in tourism while inflation expectations have fallen back to target. Still, policymakers noted that this year’s economic contraction will measure 0.2 percent, slightly less than was forecast in May, due mainly to more resilient private consumption growth, although the contribution of net foreign trade is also more positive, as demand has shifted towards domestic production. Near-term monetary policy decisions will depend on the interaction between developments in economic activity, on the one hand, and inflation and inflation expectations, on the other. Interest Rate in Iceland averaged 7.48 percent from 1998 until 2019, reaching an all time high of 18 percent in October of 2008 and a record low of 3.50 percent in August of 2019.
Interest Rate in Iceland is expected to be 3.50 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 3.00 in 12 months time. In the long-term, the Iceland Interest Rate is projected to trend around 3.00 percent in 2020, according to our econometric models.