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ING: Expects a further 25bps this year, before a pause in the cycle

SNB
  • The central bank surprised everyone by raising its rate by 50 basis points. This rapid change in monetary policy is partially explained by the situation in the FX market. While the Swiss franc was considered by the SNB to be overvalued for years, which pushed inflation down, the SNB now believes the franc is no longer highly valued.
  • By deciding to raise rates before the European Central Bank, the SNB is indicating that an appreciating Swiss franc is no longer a problem for them. On the contrary, it is acceptable because the appreciation of the Swiss franc allows inflation in Switzerland to remain more moderate than in neighbouring countries and avoids a real depreciation, given the inflation differential between Switzerland and neighbouring countries.
  • Raising rates now means that it does not have to rush into major rate hikes later on and retains the initiative. This gives the SNB room to manoeuvre in deciding what to do in September, depending on data developments and the global economic and geopolitical situation. Following this rate hike, the September meeting is therefore more open.
  • Given the inflation forecasts and the economic environment, we believe that a further 25bp rate hike is to be expected this year, but we think it unlikely that the SNB will go further than that this year.
  • In our view, once the policy rate moves to 0%, any further rate hikes would be for 2023. The SNB should therefore be less aggressive in its rate hikes than the ECB.
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  • The central bank surprised everyone by raising its rate by 50 basis points. This rapid change in monetary policy is partially explained by the situation in the FX market. While the Swiss franc was considered by the SNB to be overvalued for years, which pushed inflation down, the SNB now believes the franc is no longer highly valued.
  • By deciding to raise rates before the European Central Bank, the SNB is indicating that an appreciating Swiss franc is no longer a problem for them. On the contrary, it is acceptable because the appreciation of the Swiss franc allows inflation in Switzerland to remain more moderate than in neighbouring countries and avoids a real depreciation, given the inflation differential between Switzerland and neighbouring countries.
  • Raising rates now means that it does not have to rush into major rate hikes later on and retains the initiative. This gives the SNB room to manoeuvre in deciding what to do in September, depending on data developments and the global economic and geopolitical situation. Following this rate hike, the September meeting is therefore more open.
  • Given the inflation forecasts and the economic environment, we believe that a further 25bp rate hike is to be expected this year, but we think it unlikely that the SNB will go further than that this year.
  • In our view, once the policy rate moves to 0%, any further rate hikes would be for 2023. The SNB should therefore be less aggressive in its rate hikes than the ECB.