Switzerland’s central bank held its main interest rates steady Thursday, noting that previous increases had done their job by squelching consumer price growth.
“The significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure,” the bank said, noting that it could not rule out further rate increases.
The decision to hold the bank’s key policy rate at 1.75% came as a surprise as an economists’ poll had predicted a 25-basis point hike.
Traders were less convinced, with the market betting on only a 17bp increase earlier this week. Additionally, a number of analysts had warned that Alpine policymakers could decide to maintain rates at current levels due to slowing inflation.
Some observers had changed their tunes following last week’s 25-basis point hike from the European Central Bank by updating forecasts to say Swiss central bankers would follow suit and increase borrowing rates.
“The SNB’s decision to keep rates unchanged at 1.75% was a big surprise, although it left the door open for further hikes,” wrote Adrian Prettejohn, Europe economist at Capital Economics. “We do not expect any further increases in the policy rate as we expect inflation to fall next year. As a result, we think the SNB will actually start cutting rates next year.”
The bank said it would continue to trade on the foreign exchange market. “To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency.”
SNB inflation forecasts have improved.
Not a hawkish pause
At a press conference following the decision, SNB Chairman Thomas Jordan presented the latest inflation forecasts, noting that average annual inflation this year and next was expected at 2.2% and at 1.9% for 2025. “It is thus just within the range of price stability at the end of the forecast horizon,” he said.
However, uncertainty remains, Jordan warned. “The battle over inflation is not yet over. There is still existing inflationary pressure.” He said the bank will “wait and see” what happens with consumer price growth ahead of the bank’s next scheduled decision in December.
He shot down one journalist’s suggestion that Thursday’s move was similar to the Fed’s decision to hold rates steady less than 24 hours earlier. “We don’t use the terminology of a ‘hawkish pause.’”
In response to a question about whether the decision to hold Swiss interest rates at current levels was due to the expected recession in neighbouring Germany, Jordan said, “We don’t react to the weakness of the economy.”
The SNB said Switzerland’s GDP is likely to grow by around 1% this year.
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- Market forecast was for a 25-basis point increase to 2%
- Traders, analysts had warned of likely hold
- Tightening cycle probably over
- Previous hikes countering inflation pressure, bank says
- “Uncertainty” about consumer price growth remains
- SNB to focus on selling foreign currency
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
21 September 2023 | 08:40 GMT
Switzerland’s central bank held its main interest rates steady Thursday, noting that previous increases had done their job by squelching consumer price growth.
“The significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure,” the bank said, noting that it could not rule out further rate increases.
The decision to hold the bank’s key policy rate at 1.75% came as a surprise as an economists’ poll had predicted a 25-basis point hike.
Traders were less convinced, with the market betting on only a 17bp increase earlier this week. Additionally, a number of analysts had warned that Alpine policymakers could decide to maintain rates at current levels due to slowing inflation.
Some observers had changed their tunes following last week’s 25-basis point hike from the European Central Bank by updating forecasts to say Swiss central bankers would follow suit and increase borrowing rates.
“The SNB’s decision to keep rates unchanged at 1.75% was a big surprise, although it left the door open for further hikes,” wrote Adrian Prettejohn, Europe economist at Capital Economics. “We do not expect any further increases in the policy rate as we expect inflation to fall next year. As a result, we think the SNB will actually start cutting rates next year.”
The bank said it would continue to trade on the foreign exchange market. “To provide appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary. In the current environment, the focus is on selling foreign currency.”
Not a hawkish pause
At a press conference following the decision, SNB Chairman Thomas Jordan presented the latest inflation forecasts, noting that average annual inflation this year and next was expected at 2.2% and at 1.9% for 2025. “It is thus just within the range of price stability at the end of the forecast horizon,” he said.
However, uncertainty remains, Jordan warned. “The battle over inflation is not yet over. There is still existing inflationary pressure.” He said the bank will “wait and see” what happens with consumer price growth ahead of the bank’s next scheduled decision in December.
He shot down one journalist’s suggestion that Thursday’s move was similar to the Fed’s decision to hold rates steady less than 24 hours earlier. “We don’t use the terminology of a ‘hawkish pause.’”
In response to a question about whether the decision to hold Swiss interest rates at current levels was due to the expected recession in neighbouring Germany, Jordan said, “We don’t react to the weakness of the economy.”
The SNB said Switzerland’s GDP is likely to grow by around 1% this year.