15 November 2023

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 6-8 November. 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 30 market participants, giving a response ratio of 79%.


The survey findings indicate that market agents expect inflation to average 7.8% in Q4/2023. They expect it to ease in the coming term, to 5.5% after one year and 4.2% after two years. By both measures, expectations declined marginally relative to the August survey. Inflation expectations five years ahead were unchanged between surveys, at 4%, and ten-year expectations eased slightly, to 3.5%. 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 150 one year from now.

According to the median response in this survey, market agents assume that the Central Bank’s key rate has peaked at 9.25%. They expect it to start falling in Q2/2024, to 8.25% in one year’s time and 6.25% after two years. This is a higher interest rate than market agents expected at the time of the August survey.

Survey participants’ responses on the monetary stance changed between surveys. As before, most of them considered the current monetary stance appropriate, or 60%, up from 44% in the August survey. The share that considered the monetary stance too loose fell to 13% from the previous 30%, and around 27% of respondents considered the monetary stance too tight.

By most measures, the distribution of responses on inflation narrowed between surveys. The distribution of responses on interest rate expectations narrowed in terms of expectations for the current quarter, as well as for interest rates one and two quarters ahead, but it widened somewhat for other horizons.

Market agents were also asked to estimate the inflation risk premium in the bond market, and whether it had risen or fallen in 2023. Responses on the risk premium lay in the 0.3-4 percentage point range, with a median response of 0.85 percentage points. Furthermore, most survey participants – 68% of those who took a position on the question – were of the view that the premium had risen this year, while 16% considered it unchanged and another 16% were of the opinion that it had fallen.

See here data on market expectations:

Survey of market expectations - Q4/2023

A special site for information on surveys of market expectations