Iceland Interest Rate

The Central Bank of Iceland reduced its key interest rate by 25 bps to 7.75% during its March 2025 meeting, following a 50-bps cut last month. The decision came as headline inflation eased to 4.2% in February, marking its lowest level in four years, while underlying inflation fell to an over three-year low. Policymakers also signaled that disinflation is expected to continue in the coming months. Meanwhile, demand growth has moderated due tight monetary conditions, and capacity pressures have eased. However, the central bank cautioned that while inflation and inflation expectations have declined in recent months, price pressures persist, warranting a cautious approach to future policy decisions. This concern is exacerbated by significant global economic uncertainty.