Strong franc probably played a role in SNB interest rate cut
Published: Thursday, Jun 20th 2024, 13:30
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The Swiss National Bank has lowered its key interest rate for the second time in a row to 1.25 percent. Around half of the analysts surveyed by the news agency AWP had expected the move, while the other half had assumed that the key interest rate would remain unchanged.
"The SNB's interest rate decision was probably a close call," commented UBS economist Alessandro Bee in the aftermath of today's decision. The medium-term inflation expectations spoke more in favor of a rate cut, while the fact that the other major central banks were rather hesitant to cut interest rates spoke against it. "What may have tipped the scales was the recent significant appreciation of the Swiss franc," says Bee.
Renato Flückiger from Valiant Bank takes a similar view. "The SNB justified the interest rate cut with the decreasing inflationary pressure. However, we assume that the substantial weakening of the euro following the European elections has also had a significant impact," he said.
Karsten Junius from Safra Sarasin is not surprised by the SNB's decision, as medium-term inflationary pressure has continued to decline. In addition, the SNB is forecasting only moderate growth for Switzerland and expects capacity utilization to continue to decline and unemployment to rise.
Daniel Lüchinger from Gaubündner Kantonalbank (GKB), on the other hand, considers the interest rate cut to be "rather surprising". Although inflation is within the target range desired by the SNB, "inflationary pressure is still present". Wages in particular have risen recently, he notes.
What happens next?
It remains to be seen where interest rates will go from here. Perhaps not immediately, but at least in the medium term many experts expect a further interest rate hike. Brian Mandt from Luzerner Kantonalbank (LUKB) sees scope for this in view of the expected inflation trend and assumes that the SNB will lower the key interest rate to 1% in a year's time.
Philipp Burckhardt from Lombard Odier also expects "a final step towards neutral interest rates in the medium term", but not at the next assessment in September, as he explains. Thomas Gitzel from VP Bank takes a similar view. A pause in September would give the SNB more time to assess its future monetary policy stance, he says. In addition, there would then also be more clarity as to how the ECB and the Fed will behave.
Meanwhile, the SNB's scope for further interest rate cuts is limited, says Philipp Merkt from Postfinance. "The SNB should be careful not to reach the zero interest rate limit again. Otherwise, its room for maneuver would be severely limited in a possible next crisis."
For David Marmet of ZKB, the development depends above all on the development of the Swiss franc. In view of the economic outlook and the SNB's inflation forecast, further interest rate cuts are "difficult to justify". If the Swiss franc does not appreciate significantly in the coming months, he expects the key interest rate to remain unchanged until the end of the year.
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