Iceland holds Rates
Central Bank Maintains Rates to Stay Inflation
On February 4, 2026, the Monetary Policy Committee (MPC) of the Central Bank of Iceland announced a unanimous decision to keep the Bank’s interest rates unchanged. Consequently, the Bank’s key interest rate—the rate on seven-day term deposits—remains at 7.25%.
Inflation Trends and Economic Indicators
The decision to hold rates steady comes as inflation has risen to 5.2%. While the MPC attributes much of the January Consumer Price Index (CPI) increase to changes in public levies on new motor vehicles, the Committee notes that price hikes remain relatively widespread. Despite clear signs that the labor market is cooling and economic activity has eased, underlying inflationary pressures continue to be persistent.
According to the Central Bank’s newly published forecast, the positive output gap has closed, and GDP growth is expected to remain relatively weak. While the Bank anticipates that inflation will taper off later in the year and views the long-term inflation outlook as broadly unchanged, there is considerable uncertainty regarding the near future. Specifically, the MPC highlights that pay rises represent a sizeable factor and inflation expectations currently remain above the target.
Future Policy Outlook
The MPC stated that any future decisions to lower interest rates will depend on clear evidence that inflation is falling back to the Bank’s 2.5% target. Near-term monetary policy will continue to be determined by developments in inflation, inflation expectations, and economic activity.
Current Interest Rate Schedule
Effective February 4, 2026, the interest rates are as follows:
Overnight loans: 9.00%
Seven-day collateralised loans: 8.00%
Seven-day term deposits: 7.25%
Current accounts: 7.00%