Forecasters are split on whether the Swiss National Bank will maintain or lower the key interest rate next Thursday, reflecting widespread uncertainty.
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Forecasters are split on whether the Swiss National Bank (SNB) will maintain or lower the key interest rate next Thursday. Out of 20 economists surveyed by AWP, 12 predict the SNB will keep the rate at 1.50%, while eight anticipate a reduction to 1.25%.
There is no clear consensus among economists, with some admitting their predictions are only slightly better than chance. This uncertainty follows the SNB’s unexpected rate cut from 1.75% to 1.50% in March, which was the first move by a leading central bank to signal a change in interest rates.
Arguments for both sides hinge on inflation and economic conditions. Those favoring a rate cut cite the “moderate inflation trend,” noting core inflation at 1.2%, close to the SNB’s target range of 0-2%. They highlight May’s inflation rate of 1.4%, which, despite challenges like the rent effect, shows a positive inflation outlook, according to Brian Mandt from Luzerner Kantonalbank.
Conversely, some see signs that inflationary pressure may be increasing again, with rising wages potentially fueling inflation through second-round effects, making a rate cut less likely.
Economic growth also divides opinion. Advocates for a rate cut point to weak growth in the service sector and continued industrial sector weakness. However, ZKB Chief Economist David Marmet notes the industry’s outlook is brightening, and with the service sector still robust, monetary support may not be necessary. At 1.5%, the SNB retains enough flexibility to react to any crisis.
Vontobel Chief Economist Reto Cueni refers to SNB Chairman Thomas Jordan’s comments, indicating a targeted long-term interest rate around 1%. This limits the SNB’s maneuverability, leaving only two potential 0.25% cuts.
Exchange rates add to the uncertainty. Experts debate whether the Swiss franc’s recent strengthening or its previous weakness will influence the decision. Some believe the exchange rate trend could sway the interest rate decision.
Most experts expect the SNB to cut the rate again, either in June, September, or December, forecasting a year-end rate between 1.00% and 1.25%. The ECB’s rate cuts and the expected actions of the US Federal Reserve are seen as factors pushing the SNB to maintain interest rate differentials with the eurozone.
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