Central Bank of Iceland Holds Key Rate at 7.5%

The Central Bank of Iceland maintained its key policy rate at 7.5% during its October 2025 meeting, signaling a cautious approach amid persistent inflationary pressures. Headline inflation rose to 4.1% in September from 3.8% in August, remaining well above the bank’s 2.5% target. While recent quarters have shown a slowing in economic activity and easing demand pressures, the economy has remained relatively resilient. Wage growth continues to be significant, and although inflation expectations have moderated recently, they still remain above the target. The central bank emphasized that near-term policy decisions will continue to depend on the evolution of economic activity, inflation, and inflation expectations.