23 August 2018

Survey of market expectations

Central Bank of Iceland

The Bank’s market expectations survey was carried out on 13-15 August. A total of 30 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 21 market participants, giving a response ratio of 70%.


The survey findings suggest that market agents’ short- and long-term inflation expectations have risen since the Bank’s May survey. According to the median response in this survey, participants expect inflation to measure 2.7% in Q3 and then rise to 3.0% in Q4/2018. In H1/2018, market agents expect inflation to lie in the 2.9-3% range.

Furthermore, they expect it to measure 3% in one and two years’ time, and to average just under 3% over the next five years and 2.8% over the next ten years. The survey also indicates that respondents expect the EURISK exchange rate to be 127 in one year’s time; i.e., they expect the króna to be broadly unchanged year-on-year in August 2019.

Based on the median response, respondents expect the Bank’s key rate to be held unchanged at 4.25% for the next two years, as they did in the last survey. At the time the survey was conducted, about 81% of respondents considered the monetary stance appropriate, as compared with 77% in the last survey. About 19% of respondents considered the monetary stance too tight or far too tight, as compared with 23% in the May survey. As in the last survey, no respondents considered the monetary stance too loose or far too loose.

In this survey, the range of responses concerning market agents’ expectations about Central Bank interest rates was similar to that in the May survey. The overall range of responses on one- and five-year inflation expectations was largely unchanged from the last survey, while the range for two-year expectations narrowed and the range for ten-year expectations widened.

See also: Survey of market expectations