Iceland Interest Rate

The Central Bank of Iceland reduced its seven-day term deposit rate by 25 basis points to 9% during its October 2024 meeting, marking the first rate cut since November 2020. The Committee highlighted that inflation has recently declined, reaching 5.4% in September. Underlying inflation has also moderated, and the breakeven inflation rate in the bond market has decreased. Concurrently, economic activity has continued to slow, aligning with the tighter monetary stance. Additionally, there are indications that pressures in the labour market have eased, and sentiment among households and businesses has turned more pessimistic. Despite these developments, persistent inflation, inflation expectations above the target, and robust domestic demand warrant a cautious approach. Looking ahead, the formulation of near-term monetary policy will rely on data, particularly developments in economic activity, inflation, and inflation expectations.