By Indradip Ghosh
BENGALURU – The Swiss National Bank will cut its benchmark interest rate by 25 basis points on Thursday for a third straight meeting, according to a significant bulk of economists polled by Reuters, a slight majority of whom said the SNB would hold in December.
The central bank raised interest rates more modestly than major peers following the pandemic and started cutting in March, also much earlier than others.
Swiss inflation fell to 1.1% last month – the lowest among G10 economies, almost exactly in the middle of the SNB’s preferred 0-2% range.
But the franc has stayed strong, up more than 5% against the euro from the year’s low in late May.
Almost all economists, or 30 of 32, in the Sept. 18-23 Reuters poll predicted the central bank will reduce its main interest rate on Thursday by 25 basis points to 1.00%, in line with market pricing. One expected a 50 basis-point cut and one said no change.
Policymakers are unlikely to deliver a bigger 50 basis-oint rate cut like the U.S. Federal Reserve did last week due to limited policy space, according to most analysts, as the key rate is only 1.25%.
“The SNB is almost certain to cut its policy rate by 25bp to 1.00% this coming Thursday,” said Karsten Junius, chief economist at J. Safra Sarasin.
“We are aware that the SNB is not afraid to front-load policy changes if deemed necessary…(but) we still believe that a 50bp cut in September would display unnecessary panic.”
Around a 55% majority of economists, or 18 of 32, expected the SNB to hold rates in December. Sixteen said the rate will be at 1.00% by year-end, 15 said 0.75% and one said 1.25%.
Poll medians showed the central bank would then cut in March to 0.75% and make no more changes until at least 2026.
If the poll is correct about this week’s decision, the SNB will have cut rates by a cumulative 75 basis points this year, matching what is expected from the European Central Bank. The ECB reduced its deposit rate by 25 basis points this month for a second time and is expected to deliver another in December, according to a separate survey.
But the Swiss currency has broadly strengthened in recent months, partly on expectations of more reductions from the ECB.
SNB Chairman Thomas Jordan, who will step down at the end of September, recently said the strength of the franc was making it difficult for Swiss industry.
“Policymakers will be unhappy with the franc’s recent appreciation and will use rate cuts to try and stifle its ascent. Further ahead, if the franc continues to appreciate the SNB may revert to using large FX interventions,” said Adrian Prettejohn, Europe economist at Capital Economics.
“We think the SNB will not want to cut the policy rate much further, if at all, in response to a strong franc as policymakers will want to reserve some space to loosen policy in case a domestic shock occurs in the future.”
Swiss inflation will average 1.2% this year, according to the poll, before easing to 1.0% in 2025, broadly above the government’s latest projections.
(Other stories from the Reuters global economic poll)
