27 January 2021

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 18 through 20 January. A total of 29 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 26 market participants, giving a response ratio of 90%.


The survey findings indicate that market agents expect inflation to average 3.7% in Q1/2021 and then ease to an average of 3.3% in Q2 and 2.9% in Q3. They also expect inflation to be close to the Bank’s inflation target in Q1/2022. This is a higher rate of inflation than in the November survey, when participants expected inflation to taper off faster and align with the target in Q4/2021. Expectations two, five, and ten years ahead are still around 2.5% and are unchanged since the last survey. The survey indicates that respondents expect the króna to appreciate in the coming term, with the EURISK exchange rate measuring 150 in one year’s time.

According to the median response in this survey, market agents expect the Central Bank’s key rate to remain unchanged at 0.75% in Q1/2021 and then either remain unchanged or fall to 0.5% in Q2. They also expect the key rate to be 0.75% in one year’s time and then rise thereafter, to 1% two years from now. This is lower than in the November survey, when they expected the key rate to measure 1% until late 2021 and 1.25% in two years’ time.

Most respondents consider the monetary stance appropriate at present, or just under 46%, down from 58% in the previous survey. On the other hand, the share who consider the monetary stance too tight increased to 38%, from 27% in the last survey. The share who consider the stance too loose rose less markedly, or from 12% to 15%.

In this survey, the range of responses on inflation expectations was slightly wider than in the last survey. The interquartile range was also wider as regards inflation expectations over the next four quarters. The range of responses on interest rate expectations was largely unchanged from the previous survey, but it narrowed between surveys as regards responses on the exchange rate outlook.

In addition, participants were asked how they expected the real estate market to develop in the next twelve months. Just over half of respondents expect market turnover to decline in the next twelve months, while 37% anticipate an increase. On the other hand, virtually all survey participants expect real estate prices to keep rising in the coming year.

More here: Survey of market expectations.