16 May 2013

Market expectations survey

During the week of 6-10 May, the Central Bank of Iceland carried out a survey of market participants’ expectations concerning a variety of economic variables, including inflation and interest rates.

A total of 36 agents in the bond market, including banks, pension funds, mutual and investment funds, securities brokers, and licensed asset management firms were invited to participate. Responses were received from 25 market participants, giving a response ratio of 69%.

The May survey shows that market agents’ expectations of annual inflation have fallen since the Bank’s last survey, conducted in late January. According to the median response, respondents expect annual inflation to average 3.5% in Q2/2013 and 3.7% in Q3/2013. This is 0.6-0.7 percentage points less than in the last Central Bank survey. Furthermore, the survey findings show that market participants expect inflation to measure 4% one and two years ahead, which is about ½ a percentage point less than in the last survey. Further ahead, they expect inflation to average 4.2% over the next five years and 4% over the next 10 years, a reduction of 0.3 and 0.4 percentage points, respectively, between surveys. Market agents expect the EURISK exchange rate to be 163 in one year’s time, which is 12 krónur lower than in the last survey.

According to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged at 6% throughout 2013 and then to rise by 0.25 percentage points, to 6.25%, in Q1/2014. This is 0.25 percentage points lower than in the survey in January. Just over half of respondents considered the monetary stance adequate at the time the survey was carried out, while one-third considered it tight.

See the market expectations survey here:  Market Expectations survey 2Q2013.xlsx

See also: Market expectations survey