SNB unlikely to touch key interest rate
Published: Monday, Mar 18th 2024, 16:10
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The Swiss National Bank (SNB) will probably leave the key interest rate at the current level of 1.75% at its monetary policy assessment on Thursday. The vast majority of experts agree that the Swiss central bankers see no need for action in view of the current situation.
Most analysts surveyed by the news agency AWP assume that the SNB will join the so-called "June club" - i.e. that it will not make its first interest rate cut until June, in step with the US Fed or the ECB.
The upcoming assessment would be the third time in a row that it has stood still. From June 2022, the central bank had previously raised the key interest rate from -0.75% at the time to the current level in just five steps, putting an end to the years of negative interest rates in Switzerland.
The interest rate hikes had become necessary due to the rapid rise in prices in connection with the coronavirus pandemic and the Russian war of aggression against Ukraine. In the meantime, however, inflation has fallen from its peak of 3.5% in August 2022 to 1.2% recently and is therefore back within the SNB's target range of 0% to 2%.
Observers attribute the SNB's decision not to cut interest rates now to a certain degree of caution. Similar to the ECB and the Fed, the SNB will first want to be sure that it has actually won the battle against inflation, according to the prevailing opinion.
Play it safe
"Inflation has fallen significantly, but the SNB cannot yet be certain that second-round effects will no longer be an issue," says UBS economist Alessandro Bee. "That's why the SNB is likely to wait a little longer before declaring inflation defeated with an interest rate cut."
According to Patrick Häfeli, strategist at St. Galler Kantonalbank, "at the current level, the Swiss inflation rate is once again within the SNB's comfort zone and will remain so despite a slight increase in the coming months due to rent increases". However, this alone will not force the SNB to cut interest rates quickly.
The latest currency developments are also important for Thomas Jordan's monetary watchdogs. After the Swiss franc had seen a rapid appreciation at the end of 2023, it has clearly retreated against the euro and US dollar in recent weeks. "This has limited the negative effects on the export industry and has already improved monetary conditions," explains Raiffeisen chief economist Fredy Hasenmaile.
Demonstrate independence
While the SNB beat the ECB to the punch with its first interest rate hike in June 2022, most observers do not expect it to go ahead this time either. However, there are exceptions: David Kohl from Julius Baer and Daniel Lüchinger from Graubündner Kantonalbank, for example, expect an initial interest rate cut as early as this week.
"We assume that the SNB will lower the key interest rate to 1.50 percent, thereby once again demonstrating its independence," says Lüchinger. UBS man Bee at least does not want to rule out a surprise coup by the SNB, even if he does not see such a move as a basic scenario.
On the other hand, there are also analysts who expect interest rates to remain unchanged for some time to come. VP Bank chief economist Thomas Gitzel, for example, assumes that the SNB will not touch the key interest rates at all this year. "The key interest rate is not particularly high anyway," he says. "In addition, the Swiss economy is performing relatively solidly in view of the adverse foreign trade environment."
Waiting for Jordan's successor
All in all, the situation for the SNB is relatively comfortable with falling inflation and solid economic growth. Or as Hasenmaile from Raiffeisen puts it: "The SNB has plenty of room for maneuver, but little pressure to act."
Although it cannot be completely ruled out that the recently announced resignation of SNB Chairman Thomas Jordan as of September has changed the situation, it is rather unlikely. However, some observers speculate that Jordan could leave it to his successor to herald a turnaround in interest rates. Taking office with the first interest rate cut in two years would certainly be a rewarding option for a new president, they say.
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