The Central Bank of Iceland published results from its survey of market agents’ expectations, indicating a modest rise in inflation expectations since the Bank’s November survey and a slightly higher expected policy rate path for 2026. Based on the median response, participants expect inflation at 3.7% after one year, 3.1% after two years, and 3.2% on average over the next five years, with ten-year inflation expectations unchanged at 3%. Respondents expect the Central Bank’s key interest rate to remain at 7.25% in Q1 2026, then begin to fall in Q2 to 6.5% by year-end, while the two-year-ahead key rate expectation is unchanged at 5.75%. Views on the monetary stance shifted, with 55% describing it as too tight (down from 83% previously), 35% seeing it as appropriate (up from 17%), and 10% viewing it as too loose. The survey also reports a slightly lower expected króna-euro exchange rate after one year and mixed estimates of the nominal ten-year Icelandic Government bond term premium, ranging from near zero or negative to above 0.5 percentage points.
Central Bank of Iceland 2026-01-28
Central Bank of Iceland survey finds slightly higher inflation expectations and key rate seen holding at 7.25% in Q1 2026
The Central Bank of Iceland's survey reveals a modest rise in inflation expectations and a slightly higher expected policy rate path for 2026, with inflation projected at 3.7% after one year and 3.1% after two years. The key interest rate is expected to remain at 7.25% in Q1 2026, then decrease to 6.5% by year-end, while views on the monetary stance have shifted, with fewer respondents considering it too tight.