The Central Bank of Iceland published its Q1/2025 survey of market agents’ expectations, indicating that short-term inflation expectations are broadly unchanged from the previous survey, respondents continue to anticipate further declines in the policy rate, and longer-term inflation expectations have increased. The survey, conducted from 20 to 22 January 2025, drew 30 responses from 39 invited bond market participants. Median expectations put inflation at 3.6% in one year and 3.3% in two years, averaging 3.4% over the next five years, while the expected ten-year average rose to 3.4% from 3% previously. The median path for the Central Bank’s key interest rate was unchanged from the prior survey at 7.75% at end-Q1/2025, 6.75% after one year, and 5.75% after two years, and respondents also expected the króna to depreciate, with the EURISK exchange rate at 150 in one year. The share viewing the monetary stance as too tight fell to 80% from 87%, while 20% considered it appropriate and none viewed it as too loose. On the housing market outlook, half of respondents expected turnover to decline over the next twelve months, and views on prices were split, with roughly one-third expecting real house prices to fall and another one-third expecting them to rise.
Central Bank of Iceland 2025-01-29
Central Bank of Iceland survey shows market expects further rate cuts while ten-year inflation expectations rise
The Central Bank of Iceland's Q1/2025 survey reveals stable short-term inflation expectations, anticipated policy rate declines, and increased long-term inflation expectations, with median inflation projected at 3.6% in one year and 3.3% in two years. The survey also indicates a stable median path for the key interest rate at 7.75% by end-Q1/2025, with expectations of a depreciating króna and mixed views on the housing market turnover and prices.