25 August 2016

Market expectations survey

Central Bank of Iceland

The Bank’s market expectations survey was carried out on 8-10 August. A total of 29 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 19 market participants, giving a response ratio of 66%.


The results of the survey indicate that market agents expect inflation to be lower in the next few months than in the last survey, which was carried out in May. According to the median response, survey participants expect twelve-month inflation to average 1.1% in Q3/2016, 1.6% in Q4/2016, and 2% in Q1/2017. This is about 1 percentage point lower than they expected in early May. The survey also suggests that respondents expect inflation to measure 2.3% in one year, which is 0.7 percentage points lower than in the last survey, and 3% in two years, which is 0.5 percentage points lower than in the last survey. Respondents expect inflation to average 3% over the next five years, a decline of just over 0.3 percentage points from the May survey. Expectations concerning average inflation over the next ten years fell as well, by 0.5 percentage points between surveys, to 3%. Moreover, the survey indicates that respondents expect the EURISK exchange rate to be 125 in one year’s time, which means that they expect the króna to be 4.8% stronger than in the last survey.
According to the median response, market agents expect the Central Bank’s seven-day collateralised lending rate to remain unchanged, as in the last survey. The current survey indicates, however, that they expect the collateralised lending rate to be lowered by 0.25 percentage points, to 6.25%, at the beginning of 2017, and to 6% in the third quarter of the year, but that it will be back to 6.5% in two years, as was the case in the last survey. This is quite different from the survey in May, when market participants expected interest rates to be raised by 0.25 percentage points in 2017.

At the time the survey was conducted, about 16% of respondents considered the monetary stance appropriate. This is about 9 percentage points lower than in the last survey. The percentage who considered the monetary stance too loose or far too loose fell from 25% to 5%, and the percentage who considered it too tight or far too tight rose from 50% to 79%. The results of this survey of the market’s opinion of the monetary stance differ from the projections for the current quarter in the last survey, when only 38% of respondents were of the view that the monetary stance would be too tight or far too tight in Q3/2016.

See the market expectations survey here: Market expectations survey, Q3/2016

Further information on the market expectations survey can be found here: Market expectations survey

1 The results for Q2/2016 have been revised because of errors in the processing of the last survey