The Swiss National Bank is widely expected to raise its benchmark interest rate this week, with most analysts expecting a small move as some wonder if this will be the last example of monetary tightening before the rate-setters in the Alpine nation shift gears and start loosening policy again next year.
A poll of economists predicts the SNB will raise its policy rate 25 basis points to 1.75% on Thursday, but some observers forecast a bigger move.
“The SNB has struck a hawkish tone in recent communications, so we think a 50bp hike to 2% is more likely, wrote Adrian Prettejohn, Europe Economist at Capital Economics. “Vice-Chairman Martin Schlegel noted that ‘inflation is spreading to other goods and services, not linked to energy and supply bottlenecks’. And [bank president] Thomas Jordan said the SNB needed to bring inflation back below 2% as soon as possible.
Prettejohn noted that the most hawkish comment from Jordan was his suggestion that Switzerland’s neutral interest rate might be around 2%, which would mean the current policy rate of 1.5% is still in expansionary territory. “With this in mind, it would be hard to square the SNB raising the policy rate to just 1.75% when inflation is too high for comfort for policymakers.”
Swiss headline annual inflation fell to 2.2% last month from 2.6% in April after hitting 3.4% at the beginning of the year.
Eyes on inflation
As consumer price growth trends toward the SNB’s target of less than 2%, some analysts are saying a hike Thursday will end the tightening phase in Alpine nation.
“We expect the SNB to increase policy rates 25bp […] to 1.75% and, while still data dependent, this is probably the last hike in this cycle,” BofA noted. “Aſter the last meeting, we flagged the risks of a 50bp hike in June given the SNB's inflation forecasts at that time. But since then, inflation developments have been a bit more benign, reducing the risk of a 50bp increase.”
BofA added that it would expect the Swiss central bank to leave the door open for more hikes if needed, but: “We expect the SNB to hold rates steady for some time. Consensus has the first cut in 2Q24, in line with the first forecast reduction from the European Central Bank.”
Nomura danced on the middle ground, which is where investors have been. “Markets are pricing around 38bp, so they are clearly torn between a 25bp hike and a 50bp one. All in all, we lean towards the SNB raising rates again by 50bp, bringing its policy rate to 2%, as a result of its hawkish rhetoric, persistence in core inflation, and the lack of opportunities it has to alter the policy rate.
“That said, there is a risk that the slowing of the global cycle, which is pushing other central banks to slow the paces of their rate hikes or even pause, may too encourage the SNB to downshift to only a 25bp hike.”
The bank is also set to announce its latest growth forecasts for Swiss consumer prices and the economy. For inflation, Prettejohn from Capital Economics said, “We expect the forecast to be revised down and show inflation falling a bit below 2%. This won’t preclude the SNB from raising rates as officials would probably prefer inflation to be closer to 1%.”
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- Market expects 25-basis point hike
- Some analysts lean toward half-point increase
- Observers murmur about possible rate cuts in H1 2024
- Monetary policy decision due Thursday at 07:30 GMT / 09:30 CEST
- Press conference set for 08:00 GMT / 10:00 CEST
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
19 June 2023 | 10:05 GMT
The Swiss National Bank is widely expected to raise its benchmark interest rate this week, with most analysts expecting a small move as some wonder if this will be the last example of monetary tightening before the rate-setters in the Alpine nation shift gears and start loosening policy again next year.
A poll of economists predicts the SNB will raise its policy rate 25 basis points to 1.75% on Thursday, but some observers forecast a bigger move.
“The SNB has struck a hawkish tone in recent communications, so we think a 50bp hike to 2% is more likely, wrote Adrian Prettejohn, Europe Economist at Capital Economics. “Vice-Chairman Martin Schlegel noted that ‘inflation is spreading to other goods and services, not linked to energy and supply bottlenecks’. And [bank president] Thomas Jordan said the SNB needed to bring inflation back below 2% as soon as possible.
Prettejohn noted that the most hawkish comment from Jordan was his suggestion that Switzerland’s neutral interest rate might be around 2%, which would mean the current policy rate of 1.5% is still in expansionary territory. “With this in mind, it would be hard to square the SNB raising the policy rate to just 1.75% when inflation is too high for comfort for policymakers.”
Swiss headline annual inflation fell to 2.2% last month from 2.6% in April after hitting 3.4% at the beginning of the year.
As consumer price growth trends toward the SNB’s target of less than 2%, some analysts are saying a hike Thursday will end the tightening phase in Alpine nation.
“We expect the SNB to increase policy rates 25bp […] to 1.75% and, while still data dependent, this is probably the last hike in this cycle,” BofA noted. “Aſter the last meeting, we flagged the risks of a 50bp hike in June given the SNB's inflation forecasts at that time. But since then, inflation developments have been a bit more benign, reducing the risk of a 50bp increase.”
BofA added that it would expect the Swiss central bank to leave the door open for more hikes if needed, but: “We expect the SNB to hold rates steady for some time. Consensus has the first cut in 2Q24, in line with the first forecast reduction from the European Central Bank.”
Nomura danced on the middle ground, which is where investors have been. “Markets are pricing around 38bp, so they are clearly torn between a 25bp hike and a 50bp one. All in all, we lean towards the SNB raising rates again by 50bp, bringing its policy rate to 2%, as a result of its hawkish rhetoric, persistence in core inflation, and the lack of opportunities it has to alter the policy rate.
“That said, there is a risk that the slowing of the global cycle, which is pushing other central banks to slow the paces of their rate hikes or even pause, may too encourage the SNB to downshift to only a 25bp hike.”
The bank is also set to announce its latest growth forecasts for Swiss consumer prices and the economy. For inflation, Prettejohn from Capital Economics said, “We expect the forecast to be revised down and show inflation falling a bit below 2%. This won’t preclude the SNB from raising rates as officials would probably prefer inflation to be closer to 1%.”