MNI WATCH: SNB Holds Policy Rate At 1.75%, But Battle Not Won

Weak growth and the expected passthrough of previous monetary policy tightening prompted the Swiss National Bank to hold its key policy rate of interest at 1.75% on Thursday, although it said further hikes have not been ruled out. (See MNI SNB WATCH: SNB Weighs 25Bp Hike)

Inflation fell to 1.6% in August, inside the SNB’s tolerance band of 0-2%. Overall, the medium-term projection dipped slightly, averaging 2.2% for 2023 and 2024, and 1.9% in 2025, with the Swiss economy also seeing the effects of monetary tightening by other central banks.

Annual growth is expected to stagnate at 1%, with SNB chairman Thomas Jordan stating that while “the battle over inflation is not yet over….given the relatively comfortable level of Swiss inflation we came to a conclusion that within a risk management approach the best solution was to wait and see.”

Economists interviewed by MNI ahead of September’s monetary policy assessment highlighted the likelihood that rising rents and a pre-announced increase in energy price from January will add to upward price pressures. (See MNI: SNB In Close Call, With 25Bp Hike On The Table-Economists)

“There are still existing inflationary pressures, and we do not exactly know whether this inflationary pressure will increase again, Jordan continued. “We will decide in December…and if necessary continue to tighten.”

The SNB said it remains willing to be active in the foreign exchange market as necessary, with the focus on selling foreign currency.