The Central Bank of Iceland published its latest survey of market participants, showing that respondents expect higher inflation in 2026 than in the May survey and a 0.25 percentage point increase in the key interest rate to 8% in the third quarter. Median one-year inflation expectations were unchanged at 3.9%, with inflation expected to subside relatively quickly in 2027. Respondents expect inflation of 3.5% in two years and an average of 3.3% over five years, both marginally higher than previously, while the 10-year expectation remains 3%. They expect rate cuts to begin in the first quarter of 2027 and the key rate to reach about 6.25% in two years, compared with 6% in the May survey. Views on the current stance became more polarized, with 50% considering it too tight, 33% too loose and 17% appropriate.
Central Bank of Iceland2026-08-14
Central Bank of Iceland survey shows higher 2026 inflation and key interest rate expectations
The Central Bank of Iceland’s latest market survey shows higher expectations for 2026 inflation and a 0.25 percentage point key rate increase to 8% in the third quarter. One-year inflation expectations remain at 3.9%, while respondents expect rate cuts to begin in the first quarter of 2027.