Central Bank of Iceland Raises Key Rate to 7.75%

2026-05-20 09:00 By Larissa Caser 1 min. read

The Central Bank of Iceland raised its key policy rate by 25bps for a second straight meeting to 7.75% in May 2026, with all committee members voting in favor and in line with market expectations.

The decision comes amid persistent inflationary pressures and weakening economic activity.

Headline inflation eased slightly to 5.2% in April 2026 after reaching over an year high rate of 5.4%, although inflation expectations continued to rise.

In response to higher commodity prices and inflationary pressures following the war in Iran, the government reduced the petrol tax to 11% from 24% to ease inflation.

Meanwhile, economic activity contracted by 0.6% in the fourth quarter of 2025, with the outlook expected to deteriorate further if supply disruptions persist.

Despite concerns over slowing growth, the Committee signaled that it remains prepared to tighten monetary policy further while closely monitoring developments in economic activity as well as current and expected inflation.



News Stream
Central Bank of Iceland Raises Key Rate to 7.75%
The Central Bank of Iceland raised its key policy rate by 25bps for a second straight meeting to 7.75% in May 2026, with all committee members voting in favor and in line with market expectations. The decision comes amid persistent inflationary pressures and weakening economic activity. Headline inflation eased slightly to 5.2% in April 2026 after reaching over an year high rate of 5.4%, although inflation expectations continued to rise. In response to higher commodity prices and inflationary pressures following the war in Iran, the government reduced the petrol tax to 11% from 24% to ease inflation. Meanwhile, economic activity contracted by 0.6% in the fourth quarter of 2025, with the outlook expected to deteriorate further if supply disruptions persist. Despite concerns over slowing growth, the Committee signaled that it remains prepared to tighten monetary policy further while closely monitoring developments in economic activity as well as current and expected inflation.
2026-05-20
Iceland Central Bank Raises Key Rate to 7.50%
The Central Bank of Iceland raised its key policy rate by 25 basis points to 7.50% at its March meeting, with three members supporting the move and two favoring a larger 50 bps hike. The decision comes as most indicators point to slowing economic activity, while inflation remains elevated at 5.2% for a second straight month. Price pressures have been driven by higher public levies, second-round effects, and private sector wage increases at the start of the year, with underlying inflation reaching its highest level in over a year and expectations continuing to rise. Rising global commodity prices, particularly oil, amid tensions in the Persian Gulf have further lifted inflation expectations. Policymakers warned that a prolonged conflict could lead to broader price increases and raise the risk of wage review clauses being triggered. The MPC signaled further tightening if needed to bring inflation back to target, even at the expense of weaker economic growth.
2026-03-18
Central Bank of Iceland Keeps Key Rate Unchanged
The Central Bank of Iceland’s Monetary Policy Committee (MPC) kept its key policy rate steady at 7.25% during its February 2026 meeting, maintaining the lowest level since February 2023, following a 25 bps cut in November 2025. The decision reflects a shift in the economic landscape, with GDP growth expected to remain subdued and the long-term inflation outlook projected to remain broadly unchanged. Despite slower economic activity and signs of a cooling labor market, underlying inflationary pressures continue to persist. The annual inflation rate climbed to 5.2% in January 2026, from 4.5% in the previous month, marking the highest reading since September 2024. The Central Bank emphasized that any future rate cuts will hinge on clear evidence that inflation is returning toward its 2½% target. Policymakers also noted that near-term monetary policy will continue to be guided by evolving trends in economic activity, inflation, and inflation expectations.
2026-02-04