The Central Bank of Iceland is an independent institution owned by the State and operating under the auspices of the Prime Minister. Its objective is to promote price stability, financial stability, and sound and secure financial activities. The Bank shall also undertake such tasks as are consistent with its role as a central bank, such as maintaining international reserves and promoting a safe, effective financial system, including domestic and cross-border payment intermediation.
As of 1 January 2020, the Central Bank is responsible for the tasks entrusted by law and Governmental directives to the Financial Supervisory Authority, and the financial supervision is now part of the Central Bank. The Bank shall therefore monitor supervised entities to ensure that their activities are in compliance with the law and with Governmental directives, and that they are in other respects consistent with sound and appropriate business practices.
With the approval of the Minister, the Central Bank may declare a quantitative target for inflation. The target is currently, from 2001, defined as a twelve-month inflation rate of 2½%. The Central Bank is authorised, with the approval of the Minister, to declare a target for the exchange rate of the Icelandic króna versus foreign currencies. The Central Bank is required to promote the implementation of the Government’s economic policy as long as it does not consider this inconsistent with the Bank’s objectives.