(BFM Bourse) – The Swiss central bank surprised the market by maintaining its rates rather than raising them. This causes a plunge in the Swiss currency against the euro zone currency and the greenback.
The financial markets obviously do not stop at the Federal Reserve (Fed) and the European Central Bank (ECB).
Between the American central bank and the Bank of England in the busy investors’ agenda this week, the Swiss National Bank (SNB) revealed the outcome of its monetary policy meeting. And, to everyone’s surprise, it opted for a status quo on its key rates, leaving them unchanged at 1.75%.
“Only 7 of the 37 economists surveyed by Reuters correctly predicted that the SNB would maintain its rates, while we were part of the majority who predicted an increase of 25 basis points (0.25%),” observes Capital Economics.
This announcement weighs down the Swiss currency which falls by 0.6% against the euro, to 1.0373 euros, and by 0.76% against the dollar, to 1.1034 dollars. These declines are significant on the currency market, where daily volumes exceed $7,000 billion, which translates into small variations from one session to the next.
Since the start of the year, the Swiss franc remains up 2.7% against the euro and 2.1% against the dollar.
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Relatively low inflation in Switzerland
“The decision was all the more surprising as the SNB kept its inflation forecasts unchanged for 2023 and 2024, expecting inflation of 2.2% for these two years. This figure is above the range of 0% to 2% which the SNB equates to price stability”, underlines Capital Economics.
“While inflation is already well below 2%, we expected that the central bank would make a further increase, thus reflecting the actions of the ECB before stopping there,” considers Craig for his part. Erlam of Oanda.
Protected by the strength of its national currency, which makes imports less expensive and therefore pulls down general prices, inflation in the confederation has for the moment returned to a completely acceptable level. In August, according to data from the Federal Statistics Office, the consumer price index, the main gauge of inflation, increased by 1.6% over one year. In comparison, inflation stood at 5.2% year-on-year in the same month in the euro zone.
This “pleasant” development in inflation “allows us to wait until our next review to check again whether the monetary policy measures we have taken so far are sufficient,” declared its president, Thomas Jordan, cited by AFP.
But “there is still a significant risk of seeing inflation increase more than expected”, he added, among other things with the risks of “second round effects” on the prices of goods and services in Switzerland and the increase rents whose magnitude is “difficult to quantify”, he admitted.
Towards a rate cut next year?
Capital Economics nevertheless considers that “overall” the SNB’s communication “suggests that it believes that the key rate will remain at its current level for a long period”.
“A further rate hike in December remains possible, but it seems that as long as inflation remains below 2% – which we believe to be the case – the SNB will not raise its rate because it will consider that this is of a “comfortable level”,” continues the think tank. The latter also expects the Swiss central bank to begin reducing its key rates from June 2024.
Craig Erlam judges that a rate hike by the SNB “seems very unlikely today, and the question will rather be knowing when we can expect rate cuts rather than increases”.
Julien Marion – ©2023 BFM Bourse