St. Wales Kantonalbank’s chief investment officer makes a prediction: How long will it take for the SNB to cut interest rates again?

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After the US Federal Reserve left interest rates unchanged on Wednesday last week, yields in bond markets began to fall. Many market participants are convinced that interest rates have reached their peak. Swap rates in Switzerland have also fallen significantly in the last few days.

This means that swap interest rates, which are important in determining interest rates on fixed-rate mortgages, are sometimes well below the Swiss National Bank’s (SNB) base interest rate for all periods. This means that some market participants now expect significant rate cuts from the SNB as early as next June.

This “turn” in market expectations in Switzerland is reflected in St. It is incomprehensible to Thomas Stucki, chief investment officer of Kantonalbank of Wales. On the contrary: “I don’t see the SNB’s first rate cut until 2025,” Stucki, formerly the SNB’s chief investment officer, writes in a comment on Monday.

Inflation is on the rise again in Switzerland

He pointed out that inflation in Switzerland is expected to rise again to 2 percent in the coming months. Because higher rents and new electricity prices will have an impact.

Inflation in Switzerland remained unchanged at 1.7 percent in October. It remains in the mid-range and the SNB’s targeted range of 0 to 2 percent. Before that, inflation had fallen significantly from above 3 percent for months, but in June it fell below 2 percent for the first time since January 2022.

“No surprise SNB warns of further rate hikes”

His argument also points out that the SNB’s inflation forecast of 1.75 per cent, the current key interest rate, will fall ever so slightly below 2 per cent over the next two years, Stucki continues. “It’s no surprise that the SNB is warning against further rate hikes.” The fact that Switzerland is still miles away from recession makes interest rate cuts reasonable.

Stucki also rejects the argument that if the European Central Bank (ECB) cuts interest rates to prevent the franc from appreciating, the SNB will have to do the same. First, it is not certain that the European Central Bank will quickly reduce interest rates in the Eurozone; especially due to high inflation of 4.3 percent in the Eurozone.

Secondly, the SNB raises interest rates less than the ECB or the Fed, Stucki said. “The interest rate differential with Europe is well above the historical average, which increases the SNB’s room for action. After all, interest rates and changes in interest rates have only a short-term impact on exchange rates.

Even in 2025, when the SNB could cut key interest rates again, the potential for a decline in interest rates is still limited, given an inflation rate that is at best in the middle of the SNB range, according to Thomas Stucki.

Source :Blick