07 November 2013

Market expectations survey

From 28-30 October, 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 20 market participants, giving a response ratio of 56%.

The October survey shows that market agents’ expectations of annual inflation have fallen since the last survey, which was carried out in mid-August. According to the median response, respondents expect annual inflation to average 3.7% in Q4/2013 and 3.8% in Q1/2014. This is 0.2-0.5 percentage points lower than in the last Central Bank survey. The survey findings also show that market agents expect inflation to measure 4% one and two years ahead, which is a decline of 0.2-0.5 percentage points since the last survey. Their expectations of average inflation over the next five years declined by 0.2 percentage points between survey, while their 10-year expectations were unchanged. Market agents also expect annual inflation to measure 4.0% during these periods. Market agents expect the EURISK exchange rate to be 169 in one year’s time, which is roughly the same as in the last survey.

According to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged at 6% through the end of Q1/2014 and to rise by 0.25 percentage points in Q2/2014. The results also indicate that market agents expect an additional interest rate increase of 0.25 percentage points by the end of 2014, which will bring the collateralised lending rate to 6.5%. At the time the survey was carried out, 60% of market agents considered the monetary stance appropriate, while 5% considered it too loose and 25% considered it too tight.

See the market expectations survey here: Market Expectations survey 4Q2013.xlsx (Excel-file)

See also: Market expectations survey