Week of major interest rate decisions: Is the Swiss National Bank really staying silent?

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The era of aggressive interest rate hikes in the USA is over. On Wednesday, the Fed’s monetary authorities are expected to pause interest rates for the third consecutive year. The decline in price inflation in recent months also supports this. This also applies to Switzerland. The Swiss National Bank SNB will also probably not need to change its key interest rate because inflation has cooled more than expected recently.

Economists almost unanimously expect monetary authorities to leave the SNB interest rate at 1.75 percent once again at this meeting. In September, the majority had expected a further increase and the SNB was surprised. The central bank left the interest rate unchanged for the first time since the start of the boom cycle.

Before that, the central bank had put an end to the years-long period of negative interest rates in Switzerland by increasing the interest rate from -0.75 percent to the current level in just five steps since June 2022.

While concerns continued in September that interest rates would be “higher for a long time”, falling inflation data in the US, Europe and here also caused rethinking.

As a reminder: the SNB’s stated aim is to ensure price stability. The SNB is on track to fulfill this mandate, with inflation falling to 1.4 percent in November from 1.7 percent previously. Your stated goal is an inflation rate of 0 to 2 percent.

Who will lower interest rates first?

With that in mind, investors looking ahead to 2024 have the following question on their mind: Who will cut first and by how much? This is especially evident in bond markets, where yields have fallen significantly.

“Inflation in Switzerland, which was below expectations in November, closed the door to further interest rate increases,” says Daniel Lüchinger from Graubündner Kantonalbank. But at the same time, he does not see a rapid rate cut because, on the one hand, there are upside risks to the inflation outlook, especially rents. “Second, inflation in Switzerland has only been above one percent in five of the last 27 years, suggesting that it is preferable to keep inflation in the lower half of the target range.”

But when it comes to the SNB’s future interest rates, economists’ views vary surprisingly widely. Economists at Capital Economics predict that the first rate cut for the next assessment will be in March. They expect inflation to be around 1 percent next year.

Other experts, such as UBS or AXA Investment Managers, expect the first interest rate to move towards June, if not September.

St. In Wales Kantonalbank, they believe that the SNB will loosen the reins only from 2025. The central bank has no reason to cut interest rates quickly right now, because the current base interest rate of 1.75 percent is not high at all and is slowing the economy.

Does the SNB adjust its inflation forecasts?

So, while no change is expected on the interest side on Thursday, it is quite possible that the SNB will both adjust its inflation forecasts and change its choice of words regarding intervention in the foreign exchange market.

The SNB has repeatedly emphasized recently that it welcomes a strong franc in the fight against imported inflation and that it could even support it with foreign exchange sales if necessary. Responsible experts at both UBS and Capital Economics believe that the decline in importance of this instrument is possible.

Similar to the SNB, the US Federal Reserve and ECB are expected to confirm the status quo this week (on Thursday) and make no further interest rate moves. “The pre-Christmas monetary policy calm is unlikely to be disrupted again,” says a comment from Allianz Global Investors. (SDA/uro)

Source :Blick