SNB significantly lowers inflation forecast
Published: Thursday, Mar 21st 2024, 11:22
Updated At: Thursday, Sep 26th 2024, 10:10
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The Swiss National Bank (SNB) has significantly lowered its conditional inflation forecast. Further interest rate cuts are therefore possible.
According to the SNB, price stability, i.e. inflation of 0% to a maximum of 2%, is guaranteed with the key interest rate lowered to 1.00%. In its latest forecast, it assumes that inflation will average 1.2% in 2024. Values of just 0.6% and 0.7% are now expected for 2025 and 2026. A value of over 1 percent is not estimated for any quarter in the forecast period from 2025 onwards.
The SNB has thus significantly lowered its forecasts compared to its last assessment in June. At that time, it had predicted annual averages of 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026 based on a key interest rate of 1.25%.
Stronger franc helps
According to the SNB communiqué issued on Thursday, inflationary pressure in Switzerland has once again fallen significantly compared to the previous quarter. This decline reflects, among other things, the appreciation of the Swiss franc over the last three months.
The lower oil price and the electricity price cuts announced for next January also contributed to the downward revision. With the stronger decline in inflation, lower second-round effects are also expected in the medium term.
Further reductions may be "necessary"
The SNB's forecasts are always based on the assumption that the SNB key interest rate will remain at the current interest rate level over the entire forecast period. Relatively low inflation forecasts therefore increase the scope for the monetary authorities to lower interest rates.
Without today's interest rate cut, the conditional inflation forecast would be even lower, the monetary authorities emphasized in the press release. They also wrote that "further interest rate cuts may be necessary in the coming quarters in order to ensure price stability in the medium term".
Moderate growth
The SNB is sticking to its previous assessment of economic growth for the current year. It continues to forecast growth in gross domestic product (GDP) of around 1%. For 2025, it expects growth of around 1.5%.
In the coming quarters, growth in Switzerland is likely to be rather subdued due to the recent appreciation of the Swiss franc and the moderate global economic development.
In the medium term, however, the growth-dampening effect of the recent appreciation of the Swiss franc should ease, according to the monetary authorities. In their view, this should lead to a gradual improvement. This forecast is subject to considerable uncertainty, with developments abroad representing the main risk.
As usual, the SNB also comments on the mortgage and real estate market. Momentum on these markets has slowed over the last few quarters. The vulnerabilities on these markets have decreased slightly, but still exist, according to the SNB.
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