Iceland’s Central Bank Data Show Steady Conditions

The Central Bank of Iceland (CBI) released its latest financial statistics and quarterly lending survey, confirming broadly stable macro and credit conditions. While credit standards remain tight, they have shown little additional tightening in recent months. Household borrowing appetite is cooling as high real interest rates constrain affordability, and corporate demand remains selective, focused on export-linked sectors and infrastructure projects.

Headline inflation has moderated but continues to exceed the 2.5 percent target, sustaining the central bank’s restrictive stance. Real policy rates remain positive, reinforcing expectations that the Monetary Policy Committee will maintain its hold bias through early 2026. The housing market shows signs of rebalancing: new supply is improving, and demand has cooled as affordability ratios stretch.

Transmission dynamics remain uneven. High fixed-rate mortgage penetration slows monetary pass-through, while commercial banks continue cautious repricing on deposits and loans. The krona’s (ISK) trajectory remains a key swing factor for imported inflation. As the peak tourism season fades, FX inflows are softening, though reserves remain ample to buffer volatility.

Markets are focused on the inflation glide path, upcoming wage negotiations, and the diffusion index within the credit survey for clues to timing of any eventual rate adjustment. Front-end yields remain anchored, while long-end Icelandic government bonds track global market sentiment through the dollar index (DXY) and energy price movements (CL=F ≈ US$89).

The base case points to an extended policy hold until inflation convincingly returns to target. The risk case involves renewed FX weakness or energy volatility reigniting price pressures and prompting hawkish guidance. Monitoring CPI trends, wage settlements, housing turnover, and credit availability will be key to assessing stability through 2026.