Economists differ on the position that the Swiss National Bank (SNB) will adopt next Thursday in terms of the key rate. In a context of high inflation and tightening of monetary policies, the institute will have to skilfully place its pawns.
Since the last monetary policy decision on March 24, the Swiss guarantor of monetary stability has been facing a difficult situation. The war in Ukraine, which has now lasted for over a hundred days, shows no sign of abating and inflation continues to climb, driven by soaring commodity prices and bottlenecks in international logistics .
In this anxiety-provoking context, the Organization for Economic Co-operation and Development (OECD) cut Wednesday in its growth forecasts, while raising its expectations for inflation. It lowered its global growth expectation for this year to 3%, from 4.5% last December. Inflation might rise to 8.5%.
Switzerland is not spared by these upheavals. The OECD expects a 2.5% increase in gross domestic product (GDP) in 2022, once morest +3.0% in previous estimates. Inflation is expected at 2.5% for the current financial year – above the stability target capped at 2% by the SNB – and at 1.8% in 2023.
The direction that will be adopted next Thursday by the Swiss issuing institute is not necessarily obvious, according to specialists. For Vontobel’s chief economist, Reto Cueni, “the start of the monetary tightening cycle in Europe should finally also wake up the Swiss National Bank”.
On Thursday, the European Central Bank (ECB) indeed confirmed the end of net debt buybacks on the market from July 1st. The key rate is currently maintained at its historic low, despite inflation in May at 8.1% over one year, a record level. However, the ECB plans to raise its rates by 25 basis points at its next meeting on July 21 and expects a further increase in September.
In the United States, the American Federal Reserve (Fed) assured that it would do everything to bring inflation back into line. It started to raise its key rates vigorously in May – by half a point in a range of 0.75% and 1% – and should continue.
The SNB should still temporize, believes Mr. Cueni in a commentary. The issuing institute headed by Thomas Jordan is expected to carry out a first increase in the key rate – at -0.75% since January 2015 – in September, followed by two others in December and March 2023, which will take the SNB out of the rates negatives.
By tightening their monetary policy, central banks are raising the cost of credit, hoping to curb consumption and inflation. But raising rates too steeply might also hurt economic recovery, which depends in part on access to borrowing, following two years of the pandemic.
Pressure on the franc
According to Commerzbank specialists, the SNB prepared the market for an exit from its ultra-expansive monetary policy, but it also signaled “that it is not as rushed as its counterparts”. More than 60 central banks around the world have already raised their interest rates in 2022, recalled John Plassard of Mirabaud Banque on Twitter.
The pressure is not yet too great for the Swiss central bank and the latter wants to avoid upward pressure on the franc, which might be harmful for Swiss exporters. The SNB should therefore give priority to the ECB in July before following in September.
Daniel Kalt, chief economist at UBS, agrees. He does not expect a move from the SNB before September. “An announcement next week (…) would be a surprise and might increase the upward pressure on the franc in view of the unstable macroeconomic and geopolitical situation,” he told AWP.
The SNB might still review its vocabulary on the valuation of the franc, in order to prepare the markets for its next decisions, according to Mr. Kalt.
J. Safra Sarrasin’s specialists are more cautious. “It is wrong to assume that the SNB will only raise its rates following the ECB,” they qualified. The economy is doing well, the real exchange rate is not overvalued, inflation is above the set target and labor market tensions might push wages up.
For the bank, there is therefore “no reason for the SNB to wait even longer”. It might thus raise its rates by 25 basis points at its next quarterly meetings, starting next week.
This article has been published automatically. Source: ats/awp