Icelandic Central Bank Rate Cut
November 19, 2025
A 25-basis point cut in the Bank of Iceland‘s 7-day term rate today to 7.25% had not been expected by analysts. That was the fourth reduction this year and follows two cuts in the final quarter of 2024. Altogether, the rate has dropped two percentage points from the 9.25% peak held from August 2023 until October 2024. Officials at the central bank note that Iceland’s output gap has been closed, and they feel that
Inflation will subside more rapidly than previously assumed. Pay rises are still sizeable, and inflation expectations continue to measure above target. Substantial uncertainty therefore remains…. The turbulence in the mortgage market is likely to cause households’ borrowing terms and financial conditions to tighten, even though the Bank’s real interest rate has held broadly unchanged. In view of this, the Committee considers it appropriate to offset this tightening by lowering interest rates.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of Iceland
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