The Central Bank of Iceland’s Monetary Policy Committee (MPC) kept its key policy rate steady at 7.25% during its February 2026 meeting, maintaining the lowest level since February 2023, following a 25 bps cut in November 2025. The decision reflects a shift in the economic landscape, with GDP growth expected to remain subdued and the long-term inflation outlook projected to remain broadly unchanged. Despite slower economic activity and signs of a cooling labor market, underlying inflationary pressures continue to persist. The annual inflation rate climbed to 5.2% in January 2026, from 4.5% in the previous month, marking the highest reading since September 2024. The Central Bank emphasized that any future rate cuts will hinge on clear evidence that inflation is returning toward its 2½% target. Policymakers also noted that near-term monetary policy will continue to be guided by evolving trends in economic activity, inflation, and inflation expectations.
