16 August 2023

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 8-10 August. A total of 38 agents in the bond market, including banks, pension funds, mutual and investment funds, securities brokers, licensed asset management firms, and insurance firms were invited to participate. Responses were received from 27 market participants, giving a response ratio of 71%.


The survey findings indicate that market agents expect inflation to average 7.8% in Q3/2023. They expect inflation to ease in the coming term, to 5.6% in one year’s time, whereas in the last survey they expected it to measure 6.3% one year ahead. Their two- and five-year inflation expectations were unchanged between surveys at 4.5% and 4%, respectively. Long-term inflation expectations rose marginally, and market agents now expect inflation to average 3.6% in the next ten years, as opposed to 3.5% in the previous survey. The survey indicates that respondents expect the exchange rate of the króna to remain broadly unchanged in the coming term, with the EURISK exchange rate measuring 145 one year from now.

According to the median response in this survey, market agents expect the Central Bank’s key rate to rise by 0.25 percentage points in Q3/2023, to 9%. In the previous survey, taken in May, they expected the key interest rate to peak at 8.5% in Q2. Respondents also expect the key rate to start falling in Q1/2024, to 7.75% in one year’s time. This is a lower interest rate than they expected in the last survey; however, their expectations about the key rate two years ahead are unchanged at 6%.

After the Central Bank’s rate hike in May, respondents’ opinions on the monetary stance have changed markedly. Most of them, or 44%, considered the current monetary stance appropriate, up from 17% in the previous survey. On the other hand, the share who considered the monetary stance too loose fell from the previous 66% to 30% in this survey, while the share who considered it too tight increased from 17% to 26%.

The distribution of responses on inflation four quarters ahead (i.e., in Q3/2024), one year ahead, and over the next five years has narrowed since the last survey but was virtually unchanged for other horizons. The distribution of responses on interest rate expectations was broadly unchanged between surveys as regards expectations one, two, and three quarters ahead, but narrowed significantly for other horizons.

See here data on market expectations:

Survey of market expectations - Q3/2023

A special site for information on surveys of market expectations