SNB interest rate decision has surprised economists
Published: Thursday, Dec 12th 2024, 15:30
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The new President of the Swiss National Bank (SNB), Martin Schlegel, took many market participants by surprise on Thursday by lowering the key interest rate by 50 basis points. According to economists and analysts, the main reason for this is likely to have been the recent sharp fall in inflation and the prospects of further declining inflation rates in the coming year.
Although there has been increased talk in expert circles over the last two weeks about a possible major interest rate cut, the overall tenor was pretty clear that it would only be 25 basis points. Only three of the 17 participants in an AWP expert survey had predicted a major move. The surprise is therefore palpable. For Katja Müller from LBBW, for example, Schlegel has "already set an exclamation mark at the beginning of his term of office with the courageous interest rate cut of 50 basis points".
Resolutely against excessively low inflation
One of the three experts who had expected or called for a major move was Karsten Junius from Bank J. Safra Sarasin. He now comments on the move as follows: "The new Chairman Martin Schlegel is clearly signaling that he is just as determined to combat low inflation as his predecessor Thomas Jordan." It is well known that inflation has fallen well below the 1 percent mark in recent months, at 0.7 percent, and is likely to fall further due to falling rents and electricity prices.
Reto Cueni from Bank Vontobel commented similarly. With this step, the SNB leadership has made it clear that it is willing to resolutely oppose the meagre inflation, which is also likely to weaken further in the coming months. And this despite the fact that it is already close to the zero interest rate limit again and is likely to further fuel the already hot real estate market.
For Daniel Hartmann from Bantleon, the inflation outlook ultimately left the central bankers "no choice" but to make a major interest rate move. The inflation rate has recently fallen noticeably short of the SNB's September forecast and there is even a risk that the inflation rate will fall to 0.0% in January as a result of the reduction in electricity prices. The risk of the rate falling below the target range (0.0-2.0%) over the next two years is therefore undeniable.
Further interest rate cuts no longer so urgent
Opinions differ as to whether the interest rate hike is a harbinger of negative interest rates or whether the big interest rate hike means that interest rates will soon bottom out. After explicitly stating in its last monetary policy assessment that further interest rate cuts were possible, the SNB dropped this wording and merely said that it would continue to monitor the situation closely and adjust its monetary policy if necessary.
For Alessandro Bee from UBS, this is an indication that the SNB "sees no greater need for interest rate cuts in the coming quarters". In this context, Brian Mandt from Luzerner Kantonalbank also points out that the SNB has revised its inflation projections for 2026 and 2027 upwards. "The scope for the SNB to lower the key interest rate even further has therefore become narrower, especially as the SNB expects the economy to accelerate in 2025." Gian-Luigi Mandruzzato from EFG Bank also says that the bar for further interest rate cuts by the SNB is relatively high after today's decision.
Meanwhile, Gero Jung from Mirabaud expects a further interest rate cut of 25 basis points in March. Inflation is likely to be only just above 0 percent next year, which indicates that the disinflationary process will continue, he explains. Fredy Hasenmeile from Raiffeisen even sees an "increased probability" that the SNB will have to lower its key interest rate even further towards zero. Although the key interest rate level is now "at least slightly expansionary" again, the SNB still considers the downside risks for inflation and the economy to be higher than the upside risks.
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