27 April 2022

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 19 through 22 April. 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 24 market participants, giving a response ratio of 80%.

The survey findings indicate that market agents expect inflation to average 7% in both Q2 and Q3/2022. They also expect inflation to begin subsiding at the end of the year and to measure 5% twelve months from now. This is higher than respondents indicated in the January survey, when one-year inflation expectations measured 3.8%. Inflation expectations two and five years ahead have also risen since the last survey and now measure 3.5%. Ten-year expectations have risen as well, to 3%. The survey indicates that respondents expect the króna to appreciate in the coming term, with the EURISK exchange rate measuring just under 136 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 3.75% in Q2/2022 and then rise by another 0.5 percentage points in Q3/2022. They also expect the key rate to measure 4.6% in one year and remain virtually unchanged in two years. This is a higher interest rate than market agents expected at the time of the January survey.

Respondents’ position on the monetary stance was broadly similar to that in the last survey. The vast majority, or 79%, consider the monetary stance too loose, as compared with 76% in January. On the other hand, the share who consider it appropriate fell to almost 17%, from 20% in the last survey. Just over 4% of respondents in this survey consider the monetary stance too tight.

The range of responses on inflation was wider by all measures than in the last survey. The range of responses on interest rates was also considerably wider as regards the next few quarters.

See here data on market expectations:

Survey of market expectations - April 2022.

A special site for information on surveys of market expectations.