MNI STATE OF PLAY: SNB Seen Holding For Now Despite ECB Moves

The Swiss National Bank is expected to increase inflation forecasts but keep rates on hold at this week’s meeting, even as speculation builds that it will soon have to tighten for the first time in 15 years as the European Central Bank readies its own hiking cycle.

While the ECB has indicated it will hike by 25bps in July and by at least that amount again two months later, the SNB is unlikely to increase its policy rate from -0.75% before September, before possibly raising it again in December, with Switzerland’s economy growing by just 0.5% in Q1 and export demand subdued.

The SNB’s March’s headline inflation forecasts of 2.1% for 2022, 0.9% in 2023 and 0.9% 2024 are likely to be revised higher on Thursday, but core inflation remains subdued and signs of secondary effects from wage increases scant despite a 0.4-percentage-point jump from the month before to 2.9% in May’s headline inflation print.

Some analysts have predicted 75 basis points in hikes to take the SNB back to zero by March next year. But this would run the risk of pushing inflation to the lower end of the central bank’s 0-2% target range, former SNB senior economist Daniel Kaufmann told MNI in May, adding that the Bank’s forecasts showed it saw little scope for tightening. (See MNI INTERVIEW: SNB To Keep Rates Negative In 2023 - Ex-Staffer)

ECB PRESSURE

But depreciation of the franc prompted by a faster-than-expected increase in ECB rates could force the SNB to follow suit, Kaufmann cautioned.

The SNB has in recent months sounded relatively relaxed about a stronger currency, with the franc’s exchange rate holding up better against a basket of currencies. President Thomas Jordan will continue to refer to the franc as highly valued and stress the SNB’s willingness to intervene in FX markets as necessary.

While this week’s decision is likely to be a hold, recent remarks by Jordan, who pointed to global inflation pressures even as world economic activity weakens and by Governing Board member Andrea Maechler, who said rates would be raised if inflation remains high, suggest

a move closer to positive rates territory could be approaching.