07.10.202608:45:28UTC+00Central Bank of Iceland Leaves Key Rate Unchanged at 8%

The Central Bank of Iceland kept its key policy rate unchanged at 8% in October 2026, halting its monetary tightening cycle after three consecutive 25 bp increases. As anticipated, headline inflation continued to accelerate following the previous meeting, reaching a two-year high of 5.9% in September, largely due to the impact of the conflict in the Middle East and higher public levies. By contrast, underlying inflation has remained relatively stable at just above 4%. Policymakers also highlighted that economic activity has begun to slow, with GDP contracting by 1.1% in Q2 after a 2.8% expansion in the previous quarter. Even so, the central bank expects inflation to ease relatively quickly in 2027, though uncertainty remains elevated regarding global economic conditions and the domestic labor market. Future rate decisions will remain data-dependent, guided by developments in economic activity, inflation, and inflation expectations, which are still elevated.