Stable króna exchange rate predicted
This is the conclusion of the Central Bank of Iceland market investors’ survey that was conducted on 4th to 6th May. The survey was sent to 28 major players in the bond market; including banks, pension funds, shares and investment funds, brokers, and asset management companies. 27 of them responded.
The median response from the companies was that they predict the annual inflation rate to be around 2.2 percent in the second quarter this year and 2.4 percent in the third and fourth. The inflation prediction is around 2.5 percent for the one, two, five, and ten-year period and therefore nearly unchanged from the last such survey.
The survey also indicates that the respondents do not believe the króna exchange rate will weaken further, putting it at an estimated 160 krónur to the euro one year from now.
The median response on interest rates shows that investors expect the Central Bank of Iceland will lower rates by 0.5 percent to 1.25 percent during Q2 this year. They predict a further 0.25 percent rate cut before the end of 2020, raising again to 1.25 percent in Q2 next year. They predict a base interest rate of 1.75 percent two years from now, which is lower than predicted in the last such Central Bank survey in January, before the COVID-19 crisis hit the global economy. Then, they thought rates would be 2.75 percent in two years’ time.