The Central Bank of Iceland’s latest survey of market expectations, conducted 2-4 November 2026, shows that market participants now anticipate a more rapid decline in the key interest rate from the third quarter of 2027 onward, while inflation forecasts for longer horizons have edged lower.
The Central Bank of Iceland surveyed 37 bond market participants, including banks, pension funds, mutual and investment funds, securities brokers and licensed asset management firms. Thirty-one responded, a rate of 84%. The survey covers expectations on inflation, the key interest rate and the exchange rate of the Icelandic króna.
On interest rates, the median respondent expects the key rate to hold at 8% in the fourth quarter of 2026 before beginning to fall in the first quarter of 2027. The expected rate in two years stands at 6%, down from 6.25% in the August survey. Expectations for the path through mid-2027 are unchanged from August, but participants now see a steeper descent after that point.
Inflation expectations shifted in both directions depending on the time horizon. Participants see higher inflation in the near term compared with August, but expect it to ease to 3.7% in one year, which is 0.2 percentage points below the August reading, and to 3% in two years, down 0.5 percentage points. Ten-year average inflation expectations remained steady at 3%. The range of responses on inflation widened across all horizons between the two surveys.
Sentiment on the appropriateness of the current monetary stance shifted considerably. The share of respondents viewing policy as too loose fell from 33% in August to 3%, while those considering it too tight rose from 50% to 65%, and those viewing it as appropriate increased from 17% to 32%.
Participants were also asked about the rise in yields on short- and medium-term indexed government bonds since early March. Most attributed the increase to expectations of a tighter monetary stance than previously anticipated, with a smaller number pointing to higher real interest rates abroad.
Source: Central Bank of Iceland. Read the original (published 2026-11-11).
