There isn't a simple functional causal relationship between interest rates, inflation and currency rates.
And in fact, I think you have it exactly backwards in this case.
Many countries have dollarized their economies - replacing a local currency supported by high interest rates with the US dollar which has even lower interest rate than EUR - as a tool to tame inflation or kill hyper-inflation. Other - small non-EU countries have adopted the Euro for the same reason.
And with the same result - a massive fall in inflation.
This isn't just theory, this has been observed to work over and over again.
Sorry but you have it backwards. The examples you have in mind are South American and Eastern European countries 20 years ago ie emerging markets struggling to maintain a currency peg.
Iceland doesn't suffer from hyperinflation and it's already got an established central bank and trusted institutions. Lowering the interest rate in this environment would 100% lead to more inflation.
Plus Iceland relies on currency devaluation to cope with shocks. It would be crazy to give this up.
And in fact, I think you have it exactly backwards in this case.
Many countries have dollarized their economies - replacing a local currency supported by high interest rates with the US dollar which has even lower interest rate than EUR - as a tool to tame inflation or kill hyper-inflation. Other - small non-EU countries have adopted the Euro for the same reason.
And with the same result - a massive fall in inflation.
This isn't just theory, this has been observed to work over and over again.