The Central Bank of Iceland conducted a survey of market agents’ expectations over the period from 10-12 August. The survey results indicate that market agents expect inflation to be higher in 2026 than they did in the May survey. Nevertheless, participants expect inflation to subside relatively quickly in 2027, and based on the median response, their one-year inflation expectations are unchanged between surveys, at 3.9%.
Highlights
The survey results indicate that market agents expect inflation to be higher in 2026 than they did in the May survey. Nevertheless, participants expect inflation to subside relatively quickly in 2027, and based on the median response, their one-year inflation expectations are unchanged between surveys, at 3.9%. Market agents expect inflation to measure 3.5% in two years’ time and to average 3.3% over the next five years, which is a marginal increase relative to the last survey. They still expect inflation to average 3% over the next ten years. Market agents expect the exchange rate of the króna against the euro to be slightly lower in one year than it was when the survey was conducted.
Market agents expect the Central Bank’s key interest rate to be higher than they did at the time of the May survey. Based on the median response, they expect the key rate to be raised by 0.25 percentage points in Q3/2026, to 8%, whereas in the last survey they expected it to be 7.75%. As in the last survey, they expect interest rates to begin falling again in Q1/2027. They expect the key rate to be about 6.25% in two years’ time, compared with 6% in the previous survey.
A third of respondents considered the monetary policy stance too loose, up slightly from 27% in the last survey. The share who considered the stance too tight rose as well, from 42% in the May survey to 50% in this one. By contrast, the share who considered it appropriate fell to 17%, from 31% in the May survey.
The overall range of responses on one- and two-year inflation expectations widened between surveys, while for other horizons it narrowed. The range of responses concerning the outlook for the key interest rate also narrowed between surveys for most horizons.