SNB lowers inflation forecast slightly
Published: Thursday, Jun 20th 2024, 10:20
Updated At: Thursday, Jun 20th 2024, 10:41
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The Swiss National Bank (SNB) has slightly lowered its conditional inflation forecast. Even with the new key interest rate, inflation is likely to move towards 1%.
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 1.25%. In its latest forecast, it assumes that inflation will average 1.3% in 2024. Values of 1.1% and 1.0% are now expected for 2025 and 2026. A value of over 2 percent is not estimated for any quarter in the forecast period.
The SNB has thus lowered its forecasts slightly compared to its last assessment in March. At that time, it had predicted annual averages of 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026, assuming a key interest rate of 1.50%.
Room for further reduction
The underlying inflationary pressure has fallen again compared to the previous quarter, the SNB explains the slight revision. This reflects somewhat lower second-round effects
The SNB's forecasts are always based on the assumption that the SNB policy 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. Many economists are therefore expecting a further interest rate cut at one of the next monetary policy assessments.
Gradual recovery of the economy
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%.
The moderate growth in Switzerland is likely to continue in the coming quarters, according to the statement. In this environment, unemployment should continue to rise slightly and production capacity utilization should fall slightly. According to the SNB, economic development should gradually improve in the medium term, supported by somewhat stronger foreign demand.
This forecast is subject to significant uncertainty, with developments abroad representing the main risk. These include geopolitical tensions and inflation abroad remaining higher for longer than expected.
As usual, the SNB also comments on the mortgage and real estate market. Momentum on these markets has slowed over the last few quarters. However, the vulnerability of these markets remains, according to the communiqué.
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