Central Bank of Iceland Raises Interest Rates to 8 Percent

The Central Bank of Iceland raised its benchmark interest rates by 25 basis points on August 19, 2026, bringing the rate on seven-day term deposits to 8.00 percent. This action represents the third rate hike since March and the third of the year, totaling an increase of 75 basis points.

The Monetary Policy Committee implemented the hike to address elevated inflation and high inflation expectations. The bank attributed these pressures to public levies and price increases linked to the war in the Middle East. While the bank noted that underlying inflation has begun to ease due to growing economic slack and that second-round effects were less pronounced than feared, it expects inflation to rise further in the coming months before tapering off next year.

Significant uncertainty remains regarding the global economy and the domestic labor market. However, the bank projects that inflation will decline rapidly in 2027.