Central Bank of Iceland Raises Interest Rates to 7.5%

2026-03-19 - 09:32

Iceland’s central bank has increased its key interest rate for the first time since 2023, citing continued inflation and rising expectations. As reported by RÚV, the Monetary Policy Committee of the Central Bank of Iceland raised the policy rate by 0.25 percentage points yesterday, bringing it to 7.5%. What's the Story? Policy rate raised by 0.25 percentage points to 7.5% by the Central Bank of Iceland Decision follows inflation at 5.2% and rising inflation expectations First rate increase since August 2023; Monetary Policy Committee split on size of change Central Bank of Iceland. Photo: Facebook. Inflation Pressures Persist The decision to raise the policy rate follows two months of inflation measured at 5.2%, with officials pointing to persistent price pressures across the economy. Central Bank Governor Ásgeir Jónsson said inflation remains the primary concern, noting that underlying inflation has not been higher in over a year. He also highlighted contributing factors including public spending, wage increases agreed in collective bargaining, and external developments such as conflicts in the Middle East. The decision was not unanimous. Three members of the committee supported the 0.25-point rise, while two favoured a larger increase and others argued for a smaller adjustment. The policy rate is one of the bank’s main tools for controlling inflation. Changes influence borrowing costs for households and businesses, typically affecting mortgage repayments, lending rates and investment decisions. Higher rates tend to reduce spending and demand, which can ease inflationary pressure over time. The latest increase comes after a period of stability in rates since August 2023. More on Iceland’s economic outlook can be found in Iceland Review’s economic coverage.