Next interest rate cut by SNB seems set
Published: Monday, Dec 9th 2024, 11:10
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The next interest rate cut by the Swiss National Bank (SNB) on Thursday is considered a foregone conclusion. However, the question of how much interest rates will fall remains open. And in the medium term, some experts are not ruling out a return to negative interest rates.
The experts are unanimous: the new SNB Chairman Martin Schlegel will loosen the reins further in his first interest rate decision. After all, the SNB had already made a preliminary move in September and declared that further interest rate cuts could be necessary. Schlegel then repeated the statement several times.
Most economists expect a "normal" step
The majority of economists surveyed by AWP (14 out of 17) currently expect a "normal" interest rate hike of 25 basis points (bp). This means that the SNB key interest rate will fall to 0.75 percent. At the same time, there are some experts who can also imagine a big move of 50 basis points to 0.50 percent.
However, the ZKB does not consider a brisker approach to be appropriate in the current situation. This is because the leading economic indicators currently point to "respectable" economic growth in Switzerland - despite the weak phase in Germany. And core inflation is "more or less" in the middle of the SNB's target range of 1 to 2 percent.
UBS argues similarly. The SNB has typically only lowered its key interest rate by more than 25 bp when the upward pressure on the Swiss franc was particularly high or price stability was threatened. There were also no signs of a rapid deterioration in the Swiss economy. So there is no reason for the SNB to waste its remaining powder.
The experts at Capital Economics also expect a reduction of just 25 basis points. At the same time, however, they assume that the SNB will adjust its interest rate forecast downwards once again and explicitly announce further expected easing.
Or a surprise move?
However, there are also analysts who are not only considering the possibility of a large interest rate hike, but even consider it the better solution. These include the economists at Sarasin.
Sarasin's argument: since foreign exchange market interventions are obviously not the means of choice at present and the latest statements by the SNB Governing Board have already clearly prepared the markets for interest rate cuts and verbal easing has therefore been pretty much exhausted, the SNB is left with only the key interest rate as a strong means of steering monetary policy.
Sarasin agrees that a reduction of just 25 bp would be the "normal" way forward. However, this is no argument for doing nothing or too little. And just because the SNB has less "ammunition" at its disposal than the ECB, it does not necessarily have to save it for later.
Instead, the SNB should use its available resources "as efficiently as possible". In addition, a major move would make the SNB appear "bolder" and have the desired effect, similar to the surprise interest rate cut by the Fed and ECB in the spring.
The economists at Bank Syz also expect a move of 50 basis points and justify this as follows: The ECB will communicate its next interest rate decision just a few hours after the SNB, probably announcing a cut of at least 25 or even 50 basis points and further easing in the months thereafter. With a big move, Schlegel and his team could therefore ensure that the franc does not appreciate excessively against the euro.
Negative interest rates again in the medium term?
Meanwhile, all economists agree that further steps will follow in the coming year 2025, regardless of the amount of the upcoming reduction. Negative interest rates cannot be ruled out in the medium term either.
Sarasin notes that SNB President Schlegel has already made this clear. For such a step to be taken, however, the Swiss economy would have to slide into recession, the Swiss franc would have to appreciate significantly and inflation would have to fall into negative territory. None of this is currently the "base scenario", according to the experts.
But there are also dissenting voices: "At the present time, we see a somewhat greater probability that the SNB's key interest rate will be below zero at the end of 2025 than above it," says Vontobel, for example. This is because the SNB probably wants to make full use of the key interest rate instrument so that it does not have to intervene too strongly in the foreign exchange market again to prevent the Swiss franc from appreciating too quickly. According to the Vontobel experts, the latter would also entail the risk that the new US administration under Donald Trump could once again denounce Switzerland as a "currency manipulator".
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