Words by

Jóhannes Bjarkason

Photo by

Natsha Nandabhiwat

On November 19, 2025, the Central Bank of Iceland announced a reduction in the capital interest rate, decreasing from 7.5 percent to 7.25 percent. 

The decision is the first change since May 2025, when it was lowered from 7.75 percent. 

According to the bank’s verdict, domestic demand has decreased, economic tension has dissipated, and economic growth is expected to slow down. As per the bank’s predictions, inflation rates are set to decrease more rapidly than anticipated. 

Due to turbulence in the domestic mortgage sector, mortgage terms are expected to worsen, leading the bank to lower interest rates with the intention to counter this turbulence.