Iceland Interest Rate2021 Data | 2022 Forecast | 1998-2020 Historical | Calendar

The Central Bank of Iceland raised its key interest rate by 25bps for a third consecutive meeting to 1.5 percent in October, amid high and persistent inflationary pressures. Signs of warning came specially from inflation expectations that seem to be rising again, although policymakers believe that it is too soon to state if they are becoming less anchored to the inflation target. The Committee also added that indicators show a strong domestic recovery in the third quarter, while the annual growth outlook remained unchanged.

The Central Bank of Iceland raised its key interest rate by 25bps to 1.25% during its August 2021 meeting, to counteract high and persistent inflationary pressures. Policymakers said the economic outlook has improved further since the Bank’s May forecast, with updated GDP growth projections pointing to an expansion of 4% this year, some 0.9 percentage points above the May forecast. The improvement is driven mainly by tourist arrivals, which have increased more rapidly this summer than was previously expected. Unemployment has subsided more than previously forecast, although it remains high, and the slack in the economy has narrowed more quickly. The Committee also noted that headline inflation remained relatively high at 4.3% in July, although it has begun to ease, and it is expected to soften somewhat more slowly than projected earlier. Thus, inflation is seen above 4% through the year-end, before aligning with the central bank's 2.5% target in the Q3 of 2022.

The Central Bank of Iceland raised its key interest rate by 25bps to 1 percent during its May meeting, amid high and persistent inflationary pressures. Latest economic data suggests a stronger than expected recovery, driven by a more robust domestic demand, with updated GDP growth forecasts standing at over 3% for 2021 and 5% for 2022. Signs of warning came specially from the widespread inflationary pressures, as prices are rising at a faster and more persistent way than previously expected, currently at an 8-year high of 4.6% YoY. Global factors such as supply-side disruptions and steep rises in the prices of oil and commodities, and country-specific ones like the increasing wages and house prices, and the depreciation of the króna, are the main causes for the upward trend in prices.

The Central Bank of Iceland kept its seven-day term deposit rate at a record low of 0.75% during its March 2021 meeting. Policymakers said that the economic contraction in 2020 (-6.6%) was smaller than the Bank forecast in February (-7.7%), as economic activity in Q4 turned out stronger than projected, and the contraction in the first three quarters of the year was somewhat smaller than previous figures had indicated. Meantime, recent surveys and high-frequency indicators suggest a continuing recovery in 2021, although the outlook is still highly dependent on the evolution of the pandemic and the pace of vaccination. The Committee also noted that inflation slowed to 4.1% in February and it is expected to start to ease this spring, although the near-term outlook has probably deteriorated since February, in particular as global oil and commodity prices have risen recently. Furthermore, inflation expectations have risen slightly.