Why does Iceland have 5% interest but Sweden 0% interest with the same GDP growth? Both countries have their own currencies, similar GDP growth and low inflation.  Yet Sweden has 0% central bank interest rates while Iceland has 5%.

Can someone explain?
Here are some elements:


Considering the two countries independently (like a closed economy), it depends on the real interest rate in the domestic country. If the inflation is zero in both countries, the real interest interest is probably higher in Iceland than in Sweden. To go deeper on this path, look at the Taylor rule which is a good proxy for the monetary policy followed in practice.
In an open economy, it depends also on the "confidence" foreign agents have in your currency. If they are afraid of a future inflation (so their returns will shrink) they "ask" for a better remuneration. For example the ECB had for years higher interest rate than the FED, and some argued the lack of confidence in the euro was one motive. The interest rate parity is the key word for deeper research.