MNI SNB WATCH: Swiss Set To Cut, But End Point In Sight
MNI (LONDON) - The Swiss National Bank looks set to reduce its Policy Rate by another 25 basis points on Thursday, with financial markets pricing a 75% chance of a move lower.
The SNB is unlikely to want to surprise markets, analysts believe, with the Policy Rate at 0.5% after successive cuts totalling 1.25% from its post-Covid high last March.
Markets have trimmed expectations for year-end easing from a terminal rate of zero, with the Policy Rate seen at 0.25% through December.
While the SNB hasn't ruled out a return to zero or even negative rates, this would take a sharp shift lower in the already-weak inflation outlook.
"President [Martin] Schlegel has said that if the SNB has to go negative, it will go negative," Stefan Gerlach, chief economist at EFG Bank, told MNI.
"I don't think they would necessarily act just because inflation falls to point-three. where it is now or to zero or minus point-one or something," said Gerlach, formerly a deputy governor at the Central Bank of Ireland.
Markets will also be eyeing the SNB's longer-term inflation outlook. Currently, the Bank sees headline inflation at 0.7% at the end of the forecast period. While any revision lower could keep prospects for further rate cuts on the table, there is room for some upside revision without putting hikes immediately back in play.
However, analysts believe that the lower the SNB takes the policy rate, the quicker the first hike will come.
FX POLICY
The SNB has largely been inactive on the FX market for the last several quarters, concentrating on jawboning rather than actual intervention, with the franc depreciating against the dollar markedly. A partial recovery in the last two weeks still leaves it weaker against a broader currency basket.
The SNB Board is likely to make its customary reference to standing ready to act on the franc if needed, though intervention probably remains a low risk for now.
As trade wars intensify, there is always the possibility that Washington could name Switzerland as a currency manipulator. However, GianLuigi Mandruzzato, a colleague of Gerlach's at EFG, sees this as an unlikely eventuality.
“Having not been active on FX rates, and if anything, the SNB did it to strengthen the currency when they last intervened in 2023 and early 2024, that weakens the argument of Switzerland being a currency manipulator,” he said.
While the wider fallout from trade disputes remains a key watch for all central banks, not just the SNB, observers feel there is little that policymakers in Zurich can do ahead of time.
“It doesn't make sense to plan for something when you just don't know what's going to happen," according to Gerlach.