29 January 2025

Survey of market expectations

The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 20 through 22 January 2025. A total of 39 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 77%.

Highlights

The survey findings suggest that market agents’ short-term inflation expectations are broadly unchanged since the November survey. Respondents expect inflation to continue falling, to 3.6% in one year’s time and 3.3% in two years’ time, and to average 3.4% over the next five years. Their long-term inflation expectations rose, however, and they now expect inflation to average 3.4% in the next ten years, as opposed to 3% in the previous survey. According to the survey results, market agents expect the króna to depreciate in the coming term and the EURISK exchange rate to be 150 in one year’s time.

According to the median response, survey participants expect the Central Bank’s key interest rate to keep falling, to 7.75% at the end of Q1/2025, 6.75% after one year, and 5.75% after two years. This is the same as in the previous survey.

The share of respondents who considered the monetary stance too tight declined from 87% in the previous survey to 80% in this one. About 20% considered the monetary stance appropriate, up from 13% in November, and none considered it too loose.

The range of responses on inflation was narrower by most measures than in the November survey. The range of responses on interest rates widened between surveys by nearly all measures, however.
Survey participants were also asked how they expected the real estate market to develop in the next twelve months. Half of respondents expected market turnover to decline in the twelve months ahead. Responses on price movements diverged fairly widely, with one-third of participants expecting real house prices to fall in the next twelve months and another one-third expecting them to rise.

See here data on market expectations: Survey of market expectations, Q1/2025.

A special site for information on surveys of market expectations is here: Survey of market expectations.

 

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