MNI WATCH: SNB Likely To Hike 25bp, But 50bps Not Ruled Out

The Swiss National Bank is expected to hike for a fifth consecutive meeting on Thursday, raising key interest rates by at least 25bps to 1.75% in what could be one of its final increases of the tightening cycle as inflation falls close to the upper end of its 0-2% target range.

While May’s headline inflation declined to 2.2%, with core inflation at 1.9%, domestic inflation now outstrips that imported from abroad and the SNB would prefer prices to be increasing at a rate around the middle of its target range. A 50-basis-point increase cannot be ruled out, and Chair Thomas Jordan will also indicate that further hikes are possible. (See MNI INTERVIEW: SNB Seen Nearing Tightening Cycle Peak).

But Jordan will also be aware that in a country where home rentals are linked to mortgage rates, further hikes could fuel some inflation. While the SNB will continue to stress its willingness to intervene in foreign exchange markets as necessary, it could drop March’s reference to the recent emphasis placed on selling foreign currency.

The SNB could slightly revise down its projection for this year’s growth from 1.0% in March, but labour markets remain tight and - absent any spillovers from a euro area recession - policymakers are unlikely to be deterred by fears of a downtown.

Jordan is expected to face questions over the banks’ role in the takeover by UBS of Credit Suisse, with competition and regulatory issues a focus. Journalists may also quiz the chair on the identity of a successor to Department III head Andrea Maechler, who leaves the Governing Board at the end of this month to take up a senior role at the Bank for International Settlements in Basel from September.