Iceland raises key interest rate to 8% as inflation stays high

In a statement, Sedlabanki justifies the interest rate increase with high inflation, which has been above 5 percent in 2026 and was recorded at 5.3 percent in July. The inflation target in Iceland is 2.5 percent.

Inflation, the annual rate of consumer price increases, is expected to continue to rise in the coming months and then decline in 2027, according to Sedlabanki.

The interest rate announcement comes ahead of Thursday's interest rate decision from the Swedish Central Bank, which is not expected to change its key interest rate of 1.75 percent.