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 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.