06 November 2014

Market expectations survey

Central Bank of Iceland
The Bank’s market expectations survey was carried out on 29-31 October. A total of 31 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 21 market participants, giving a response ratio of 68%.

The results of the October survey suggest that market agents’ inflation expectations have declined somewhat since the August survey. According to the median response, survey participants expect annual inflation to average 1.8% in Q4/2014 and 2.1% in Q1/2015. This is 0.9 percentage points lower than in the Bank’s August survey. The survey also suggests that respondents’ inflation expectations one and two years ahead have fallen by 0.5-0.6 percentage points, to 2.8% and 3%, respectively. The results show as well that market agents expect annual inflation to average 3% over the next five years and 3.2% over the next ten years. This is a reduction of 0.7-0.8 percentage points from the Bank’s August survey. Furthermore, the survey indicates that respondents expect the EURISK exchange rate to be 154 in one year’s time, which means that they expect the króna to be about 4% stronger than in the last survey.

According to the median response, market agents expect the Central Bank’s collateralised lending rate to remain unchanged until Q4/2015 and then rise by 0.25 percentage points, to 6.25%. They project the collateralised lending rate at 6.5% in two years’ time. Both figures are 0.25 percentage points lower than according to the August survey. On the other hand, survey participants indicate that they expect the Bank’s real rate to be 0.3-0.4 percentage points higher one and two years ahead. At the time the survey was conducted, about ¾ of respondents considered the monetary stance too tight or far too tight. This is an increase of 50 percentage points from the August survey. Over the same period, the percentage who considered the monetary stance suitable fell from 68% to just under 24%.

See the market expectations survey here: Market Expectations survey 4Q2014.xlsx (Excel document)

Further information on the objectives and execution of the market expectations survey can be found here: Informational Reports 1.2 Informational Reports 1.2

See also: Market expectations survey