by Indradip Ghosh
BANGALORE (Reuters) – The Swiss National Bank (SNB) will keep its main policy rate at its current level at least until the third quarter of 2024, a longer duration than estimated for the European Central Bank (ECB), despite mitigation inflationary pressures, according to the forecasts of a majority of economists polled by Reuters.
Even though inflation in Switzerland remained within the SNB’s 0-2% target in November for the sixth consecutive month, the president of the Swiss central bank, Thomas Jordan, recently declared that the institution would not hesitate to further tighten its monetary policy if this proves necessary.
The markets, however, ignore these declarations and are counting on a first rate cut by the SNB from March, the same date as what they predict for the ECB.
Unlike the markets, most economists surveyed by Reuters from December 5 to 11 believe that interest rates in Switzerland will remain higher than in the euro zone for a long time.
Nearly 70%, or 21 out of 31, indicate that the SNB will keep its main key rate unchanged at 1.75% at least until the third quarter of next year after the break expected by all. of them next Thursday at the central bank meeting.
A significant minority of economists (45%), or 13 out of 29, predict that the SNB’s first rate cut will take place in December 2024, or even later.
In a separate Reuters survey last week, for comparison, around 57% of economists surveyed predicted the ECB would make at least one rate cut by the end of June.
“The SNB will probably take a longer pause than the ECB,” predicted Evelyn Herrmann, Europe economist at Bank of America. “The (Swiss) real economy is more robust than that of the euro zone (…) We doubt that the SNB will be willing to rush into (rate) cuts now.”
Inflation in Switzerland has fallen to 1.4% and is currently at one of the lowest levels among major developed countries. It should average 1.5% and 1.3%, respectively in 2024 and 2025, compared to 2.2% expected this year.
A STRONG SWISS FRANC
If the median of the responses of the economists surveyed is confirmed, the SNB will not only keep its rates at their current level longer than the ECB, but will also start to reduce them after the US Federal Reserve (Fed), whose reduction cycle does not is not expected until July 2024, according to a majority of economists polled in a separate Reuters survey.
Furthermore, the SNB’s expected rate cut of 50 basis points for next year is less than that forecast for the Fed and the ECB.
Higher rates for a longer duration could support the SNB’s strong currency policy, particularly against the euro, with the European Union being its main trading partner.
The Swiss franc has gained almost 5% against the euro since the start of the year and reached its highest level on December 7, at 0.9401 per euro, since the SNB ended its “floor rate” policy in January 2015, a mechanism introduced in 2011 which prevented the Swiss currency from falling below 1.20 Swiss francs per euro.
The Swiss central bank indicated in September that it was “willing to be active in the foreign exchange market if necessary.” However, given the decline in inflation, some analysts expect a change in the positioning of the SNB regarding its interventions in the foreign exchange market.
“Due to the continued appreciation of the Swiss franc and falling inflation, we believe a softening of this message is likely. Perhaps the SNB will suggest that currency sales not are more necessary or that they will be done at a reduced pace”, says George Moran, economist for Europe at Nomura.
Switzerland’s gross domestic product (GDP), which grew by 0.3% in the third quarter compared to the previous quarter, is expected to grow by 1.2% and 1.4% respectively in 2024 and 2025 after an expected expansion of 0.7% in 2023.
(Writing by Indradip Ghosh; investigations by Sujith Pai and Maneesh Kumar; French version Claude Chendjou, edited by Kate Entringer)
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