22 August 2013

Market expectations survey

From 12-15 August, the Central Bank of Iceland carried out a survey of market participants’ expectations concerning a variety of economic variables, including inflation and interest rates. A total of 36 agents in the bond market, including banks, pension funds, mutual and investment funds, securities brokers, and licensed asset management firms were invited to participate. Responses were received from 23 market participants, giving a response ratio of 64%.

The August survey shows that market agents’ expectations of annual inflation have risen slightly since the last survey, which was carried out in mid-May. According to the median response, respondents expect annual inflation to average 4% in Q3/2013 and 4.2% in Q4/2013. This is 0.2-0.3 percentage points higher than in the last Central Bank survey. The survey findings also show that market agents expect inflation to measure 4.2% in one year and 4.5% in two years, which is an increase of 0.2-0.5 percentage points over and above the last survey. Their expectations of average annual inflation five and ten years ahead, however, are unchanged at 4.2% and 4%, respectively. Market agents expect the EURISK exchange rate to be 165 in one year’s time, which is roughly the same as in the last survey.

According to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged at 6% through the end of 2013 and to rise by 0.25 percentage points in Q1/2014. This is also broadly in line with the May survey. The results also indicate that market agents expect an additional interest rate increase of 0.25 percentage points in Q3/2014, which will bring the collateralised lending rate to 6.5%. Just over half of respondents considered the monetary stance appropriate at the time the survey was carried out. Just under one-fifth considered it too loose, and just over a fifth considered it too tight.

See the market expectations survey here: Market expectations survey 3Q2013 (Excel-file)

See also: Market expectations survey