21 August 2014

Market expectations survey

The survey was carried out for the eleventh time during the period 11-13 August 2014. A total of 31 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 61%. 

The results of the August survey show that market participants expect higher annual inflation in the short run than in the last survey, conducted in mid-May. Based on the median response, market agents’ expectations for twelve-month inflation are broadly unchanged. Respondents now project inflation at just under 3% in Q1/2015 and just over 3% in Q2, which is slightly higher than in the Bank’s last survey. The survey findings also show that market agents expect inflation to measure 3.3% in one year and 3.6% in two years, a marginal increase from the last survey. The results also show that respondents expect annual inflation to average 3.8% over the next five years and 3.9% over the next ten years. This is an increase of 0.1-0.2 percentage points from the Bank’s May survey. As in the last survey, market agents expect the EURISK exchange rate to be 160 in one year’s time. 

As in May, according to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged at 6% until Q1/2015, when it will be raised by 0.25 percentage points, to 6.25%. However, they now expect the collateralised lending rate to be 6.5% in Q2/2015 and 6.75% in two years’ time, which is an increase of 0.25 percentage points in both instances. Respondents were also asked what domestic real interest rate, if allowed to prevail for several years, would align output with potential output and keep inflation at target. The median response was 3%, and the standard deviation was 0.7 percentage points. 

About 68% of market agents considered the monetary stance suitable at the time the survey was carried out. This is an increase of 27 percentage points between surveys. At the same time, the percentage who considered the monetary stance too tight or far too tight declined from the previous survey, as did the percentage who considered it too loose or far too loose.

See the market expectations survey here: Market Expectations survey 3Q2014 (Excel document)

Further information on the objectives and execution of the market expectations survey can be found here: Informational Reports 1.2

See also: Market expectations survey