The Swiss National Bank (SNB) with Governing Board President Thomas Jordan is likely to raise interest rates further on Thursday. This would make negative interest rates a thing of the past in Switzerland.(Archive image)
Economists are only puzzling over the amount of interest rate hikes. When assessing the monetary policy situation, most expect an increase in the SNB key interest rate by 50 to 75 basis points. Some are even predicting a 100 basis point hike.
The Swiss key interest rate is currently -0.25 percent. In all three variants, it would be in the positive range, i.e. +0.25, +0.50 or +0.75 percent. And this is quite historical.
Because since December 18, 2014, the Swiss key interest rate has been negative. At that time it was reduced to -0.25 percent. In January 2015, the currency watchdogs then pushed it down to the record-low level of -0.75 percent at the same time as they abandoned the minimum euro exchange rate.
This level was valid until the summer. At that time, the SNB surprisingly increased its key interest rate by 50 basis points and announced the possibility of further increases, albeit in a vague manner.
Because the SNB must also do something to combat inflation. This was most recently 3.5 percent and thus above the National Bank’s target range of a maximum of 2 percent.
“The tighter monetary policy is intended to prevent inflation in Switzerland from spreading to goods and services,” said SNB President Thomas Jordan, explaining the surprising move in June. And since then he has made even more explicit statements at the central bank meeting in Jackson Hole, says Safra-Sarasin economist Karsten Junius.
Then there is the international environment. The US Federal Reserve and, in the meantime, the European Central Bank (ECB) have sharply raised interest rates – and thus also reacted to the significantly higher inflation rates in their currency areas. The US Federal Reserve will then probably announce another strong hike on Wednesday evening.
The fact that inflation in Switzerland is at a lower level than in many European countries or the USA also has something to do with the Swiss franc. This has appreciated sharply in recent months, thereby absorbing part of the inflationary pressure.
“The SNB sees the strong franc as an effective measure in the fight once morest high inflation,” says UBS economist Alessandro Bee. But this revaluation has limits because it can become a problem for parts of the export industry.
Apart from the interest rate decision, it will be of great interest on Thursday whether and to what extent the SNB will adjust its inflation forecasts. Should this be above the target range for individual years, this signals further rate hikes.
In addition, the SNB will also issue a forecast for economic growth in 2022, which was most recently around 2.5 percent. There will be no concrete forecast for 2023. It is likely, however, that the currency watchdogs will comment on the risk of a recession in the press release or at the media conference.
(SDA)
