13 February 2014

Market expectations survey

From 3-5 February, 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 32 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 19 market participants, giving a response ratio of 59%.

The February survey shows that market agents’ expectations of annual inflation have fallen since the last survey, which was carried out in late October. According to the median response, respondents expect annual inflation to average 2.7% in Q1/2014 and 2.8% in Q2/2014. This is 1.1-1.2 percentage points lower than in the last Central Bank survey. The survey findings also show that market agents expect inflation to measure 3.3% in one year and 3.5% in two years, which is a decline of 0.5-0.7 percentage points since the last survey. Respondents’ longer-term inflation expectations changed less markedly between surveys. Market agents expect twelve-month inflation to average 3.8% over the next five years, which is a decline of 0.2 percentage points from the previous survey, while their expectations for the next 10 years are unchanged at 4%. Furthermore, they expect the króna to be 6% stronger against the euro in one year’s time than in the last survey.

According to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged at 6% until the end of this year. This is 0.5 percentage points lower than in October. The results also indicate that market agents expect a 0.25 percentage points increase in Q1/2015 and that the collateralised lending rate will be 6.5% in two years’ time. At the time the survey was conducted, just under 53% of market agents considered the monetary stance suitable, while 37% considered it too tight and just over 5% considered it too loose.

See the market expectations survey here: Market Expectations survey 1Q2014.xlsx (Excel-file)

See also: Market expectations survey