The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 11-13 August 2025. A total of 37 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 28 market participants, giving a response ratio of 76%.
Highlights
The survey results suggest that market agents expect inflation to be slightly higher in coming quarters than they did in the May survey. Their expectations one year ahead and for longer horizons were virtually unchanged between surveys, however. According to the median response, market agents now expect inflation to measure 3.4% after one year; 3% after two years; and 3%, on average, over the next five and ten years. The survey results indicate that respondents expect the króna to depreciate in the coming term, with the EURISK exchange rate measuring 145.5 in one year’s time.
According to the median response, market agents expect the Central Bank’s key interest rate to be unchanged at 7.5% for the remainder of the year, whereas in the previous survey they expected it to be lowered to 7.25% in Q3 and 6.75% in Q4. Nevertheless, respondents expect the key rate to begin falling again in early 2026 and measure 6.75% in one year’s time. This is a higher rate than they expected in May. Their expectations about the key rate two years ahead were unchanged between surveys, however, at 5.75%.
The share of respondents who considered the monetary stance too tight declined from 64% in the previous survey to 43% in this one. About 43% considered the monetary stance appropriate, up from 36% in May. In addition, 14% of respondents considered the stance too loose, whereas none considered it too loose in the May survey.
The overall range of responses on inflation expectations in Q4 and on average over the next five and ten years was wider than in the previous survey, while for other horizons it was virtually unchanged. The overall range of responses on interest rate expectations narrowed between surveys.