18 August 2021

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 9-11 August. 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 24 market participants, giving a response ratio of 83%.


The survey findings indicate that market agents expect inflation to average 4.2% in Q3/2021 and then ease to an average of 4% in Q4 and 3.7% in Q1/2022. They also expect inflation to continue easing in 2022 and measure 3% a year from now. In the May survey, market agents expected inflation to subside faster, falling to 3.4% in Q4/2021. Two- and ten-year inflation expectations are still at target and are unchanged from the last survey, while five-year expectations have risen marginally. The survey indicates that respondents expect the króna to appreciate in the coming term, with the EURISK exchange rate measuring 145 in one year’s time.

According to the median response in this survey, market agents expect the Central Bank’s key rate to rise to 1.25% in Q3/2021 and then rise by another 0.25 percentage points in Q4/2021. They also expect the key rate to measure 2% in one year and 2.25% in two years. This is higher than in the survey from May, when they expected the key rate to be 1.25% at the end of 2021 and 1.5% in two years’ time.

Most respondents, or 67%, consider the monetary stance appropriate at present, up from 54% in the previous survey. The share who consider the monetary stance too loose has fallen, however, from 46% in May to 33% in this survey. As before, no respondents consider the monetary stance too tight.

The range of responses on inflation expectations one and two quarters ahead and two, five, and ten years ahead was narrower than in the previous survey. The range of responses on expectations concerning interest rates was also narrower overall than in the last survey. The range of responses on the exchange rate outlook both one and two years ahead narrowed between surveys as well.

More here: Survey of market expectations.