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UBS: Base Case is For a First Rate Hike in September by 50bp

SNB
  • We now expect the SNB to deliver a first rate hike from -0.75% to -0.25% at its meeting on 22 September (up from +25bp before), followed by further 25bp hikes in December and March, June and September of next year, to lift the policy rate to +0.75%.
  • We do not expect a policy rate change at the upcoming meeting on 16 June, but acknowledge it is a close call. While a June rate move is possible, we believe the SNB will err on the side of caution, and believe urgency on the side of the SNB is less than for other central banks.
  • Still, even without a policy rate change, there may be changes to the monetary policy statement and the inflation forecast will be closely watched after May inflation surprised substantially to the upside and wage inflation picked up in Q1.
  • A key question is whether the June monetary policy statement will retain the language that the Swiss franc is "highly valued". This statement could be dropped and be interpreted as a sign of preparing the market for a September hike, and signal more explicitly that a stronger or at least stable exchange rate is acceptable, given currently high inflation.
  • Arguably, the SNB has over recent months prepared the ground for a changed exchange rate assessment by arguing that the nominal appreciation does not entail an appreciation in real terms, given the inflation differential between Switzerland and abroad. Another option in June to signal normalisation is that the tiering framework could be made less favourable.
  • All combined, our impression is that the SNB is watching carefully whether inflation becomes persistent but that there is no sense of urgency. Unless the June inflation forecast for 2023/24 moves towards or above 2%, we believe the SNB will delay a first rate hike until September.
  • We expect the June monetary policy statement to show a conditional inflation forecast of 2.7% for 2022 and 1.5% for 2023 (both up 0.6pp from March) and 1% in 2024. The 2022 GDP growth forecast should remain "around 2.5%".
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