Central Bank of Iceland Lowers Key Rate by 25bps

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 after headline inflation eased to 4.2% in February, its lowest in four years, while underlying inflation dropped to an over three-year low.

Policymakers indicated that disinflation is expected to continue in the coming months.

Meanwhile, demand growth has moderated amid tight monetary conditions, and capacity pressures have eased.

However, the central bank warned that while inflation and inflation expectations have fallen in the recent months, price pressures persist, which calls for a cautious approach to future policy decisions.

This caution is further reinforced by significant global economic uncertainty.