Statement of the Monetary Policy Committee August 19th 2026

Statement of the Monetary Policy Committee August 19 2026 mpc statement rate decision key interest rate monetary policy monetary policy committee Listen

The Monetary Policy Committee (MPC) of the Central Bank of Iceland has decided to raise the Bank’s interest rates by 0.25 percentage points. The Bank’s key interest rate – the rate on seven-day term deposits – will therefore be 8.00%. Four Committee members voted in favour of the decision, while one voted to keep rates unchanged.

Inflation has been over 5% in 2026 to date and measured 5.3% in July. According to the Central Bank’s newly published forecast, it is expected to rise still further in the months ahead and then taper off relatively quickly in 2027. The increase in headline inflation is driven mainly by hikes in public levies and price increases caused by the war in the Middle East. Underlying inflation has held stable and has begun to ease by some measures, in line with the growing slack in the economy. Thus far, second-round effects from the aforementioned price increases appear to be less pronounced than originally feared. Furthermore, the breakeven inflation rate in the market has receded again after rising this spring.

Inflation expectations are still too high, as is underlying inflation. Although inflation is expected to decline rapidly in 2027, significant uncertainty remains, especially as regards developments in the global economy and the domestic labour market.

In light of high inflation and inflation expectations, the MPC considers it appropriate to raise interest rates to ensure sufficient monetary restraint. Monetary policy formulation will be determined, as before, by developments in economic activity, inflation, and inflation expectations.

No. 8/2026

August 19 2026

Central Bank of Iceland interest rates and reserve requirements August 19 2026 (81.18 KB)

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