MNI SNB WATCH: SNB Cuts By 25Bp To 1.5%
SNB chair Jordan gives no hint on future rate moves, with inflation now seen below 2% across forecast horizon
The Swiss National Bank cut key interest rates by 25 basis points to 1.50% Thursday, and said inflation is expected to remain below 2% over the next few years.
Most analysts had expected the bank to keep rates on hold until June, but Chair Thomas Jordan said said the fight against inflation over the past two and a half years had been effective, with the country facing “much lower inflationary pressures” than three months ago and with price growth expected to remain within the target range “over the next few years.” (See MNI SNB WATCH: Dovish Tilt, With March Cut Not Ruled Out)
Headline inflation stood at 1.2% in February, with core inflation at just 1.1%. According to the SNB’s latest conditional forecast, annual inflation is seen averaging 1.4% for 2024, with price pressures coming primarily from domestic services, 1.2% for 2025 and 1.1% for 2026.
The SNB remains willing to use foreign exchange markets and its balance sheet “as necessary” in order to maintain price stability, but “at the moment it’s not the focus,” Jordan said.
The decision to cut rates before both the ECB and the Fed was “100% compatible with our policy framework and also with our risk management approach,” he added, though he declined to give any guidance on the possibility of further rate cuts in the months ahead.
“We will look again at the inflation forecast in three months [and] if necessary we will adjust monetary policy at that time,” he told journalists.
Subdued activity in the global manufacturing sector, especially in Germany, plus weak foreign demand and the appreciation of the franc in real terms over the past year, have had a dampening effect on Swiss growth, Jordan said. Switzerland’s economy is now expected to expand by a “modest” 1% in the coming quarters, though Jordan emphasised that uncertainty, particularly geopolitical uncertainty, remains “significant.”
Unemployment will continue to rise gradually, while the utilisation of production capacity is seen declining somewhat, he added.
BANKING REGULATION
A year after the collapse of Credit Suisse and its takeover by UBS – which prompted the SNB to provide CHF168 billion in liquidity assistance loans -- the central bank said it had identified three key areas of regulatory adjustments needed to make the Swiss financial system more resilient.
Banks’ liquidity positions should be improved and they should be required to provide “significantly” more collateral in order to obtain liquidity assistance from the SNB and other central banks. Early-stage stabilisation measures should also be improved, and banks’ equity structured in a way that losses can be better absorbed, the SNB said, adding that options for the stabilisation of systemically-important banks at an early stage should also be expanded.
Lastly, following the wipeout of Credit Suisse AT1 bonds worth around CHF4 billion, banks’ equity should be structured in a way that losses can be better absorbed, the SNB said.
With Jordan stepping down as SNB chair in September, vice chair Martin Schlegel was asked if he would like to take over, and, if so, what he would have done differently. Schlegel, a candidate to succeed Jordan, declined to comment.