The Central Bank of Iceland published the results of its 5–7 May 2025 survey of market agents’ expectations, showing a slight increase in year-2025 inflation expectations since January but lower expectations at one-year and longer horizons, alongside a modestly higher near-term view of the policy rate. The survey drew 25 responses from 39 invited bond market participants (64% response ratio). Median inflation expectations were 3.3% in one year, 3.0% in two years, and around 3% on average over the next five and ten years, which is 0.3–0.4 percentage points lower than in the previous survey. Respondents expected the króna to depreciate, with EURISK at 149 in one year, and saw the Central Bank’s key interest rate at 7.5% at end-Q2/2025 (0.25 percentage points higher than previously), falling to 6% in one year and 5.75% in two years. The share viewing the monetary stance as too tight fell to 64% from 80%, while 36% judged it appropriate and none considered it too loose; response ranges generally narrowed for inflation and near-term rate horizons. On trade protectionism, roughly 60% expected higher tariffs to lift inflation over the next two years, although some pointed to weaker activity potentially easing inflationary pressure amid high uncertainty.
Central Bank of Iceland 2025-05-14
Central Bank of Iceland survey puts one-year inflation expectations at 3.3% and key rate at 7.5% at end-Q2 2025
The Central Bank of Iceland's May 2025 survey of market agents indicates a slight increase in inflation expectations for 2025, with lower expectations for one-year and longer horizons, and a modestly higher near-term policy rate view. Respondents anticipate the króna to depreciate, with the key interest rate at 7.5% by end-Q2 2025, and expect higher tariffs to raise inflation over the next two years despite potential easing from weaker activity.