MNI SNB WATCH: Rate Cut and FX Intervention As Inflation Falls

MNI (LONDON) - The Swiss National Bank is most likely to make a third successive 25-basis-point cut on Thursday, with some analysts betting on a 50bp reduction and many economists also expecting intervention to weaken a currency seen as too strong by exporters.

With inflation well within the SNB's target range and below its own projected level, policymakers have room for manoeuvre in what will be President Thomas Jordan's last policy decision before stepping down on Oct 1. 

The Policy Rate stands at 1.25% after cuts in March and June and most expect another cut to 1%, seen by most to be the neutral level. Some analysts have argued that a 50bp cut is likely in order to give a boost to incoming President, Martin Schlegel, but market pricing only ascribes a 40% chance to that possibility.

LOWER INFLATION

Inflation fell to 1.1% in August, in the middle of the Bank's 0 -2% target range and is forecast by the federal government to fall to 0.7% in 2025. The central bank is also likely to lower its own inflation forecasts, even after a rate cut, 

Although the prospect of a 50bp cut remains on the table for this meeting, most SNB watchers expect some ammunition to be saved for another day. Policymakers could opt for the more targeted tool of FX intervention to try to weaken the currency.

The franc has been strong for many months despite this year rate’s cuts, and the prospect of further easing from the U.S. Federal Reserve has put additional upwards pressure on it in recent weeks. The pair was last at USD1.179, well above the USD1.086 year lows seen in May. This has weighed on exporters’ prospects and the SNB would want to see a lower currency, despite the better-than-expected GDP reading in Q2.

Some believe the SNB may already have sold francs during the market turmoil of early August.