The Swiss central bank surprised Thursday by pausing in the tightening of its monetary policy, maintaining its key rate at 1.75% while leaving the door open to a new turn of the screw.
The Swiss National Bank (SNB), which also once again said it was ready to intervene in the foreign exchange market if “necessary”, will continue to observe “closely” the evolution of inflation in the coming months. , she indicates in the press release detailing her quarterly monetary policy decision.
“It is not excluded that a further rate increase will become necessary to ensure medium-term price stability,” she specifies.
The majority of economists expected the SNB to carry out a final rate increase of a quarter of a percentage point after five turns of the screw since June 2022, in particular to avoid letting the gap widen with the European central bank.
But many had also not completely ruled out that it would leave its key rate unchanged while Swiss economic activity suffered the repercussions in the second quarter of a drop in global demand which particularly penalized Swiss exporting companies in the industry.
Inflation in Switzerland has also fallen below 2% since June, in line with the SNB’s objectives. In August, it fell 1.6% over one year, well below the levels observed among its European neighbors.
Battle “not over yet”
This “pleasant” development in inflation, combined with a tightening of monetary conditions notably thanks to the strength of the Swiss franc, “allows us to wait until our next review to check again whether the monetary policy measures that we have taken so far here is enough,” declared its president, Thomas Jordan, during a press conference in Zurich.
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 with the increase in rents, the extent of which is “difficult to quantify”, he admitted.
“Simple turbulence, for example relating to energy supply, or more pronounced second-round effects could be enough to push inflation again out of the range of medium-term price stability,” he warned.
“The battle against inflation is not yet over,” he stressed.
For 2023 and 2024, the SNB left its inflation forecast unchanged at 2.2%. However, it lowered it to 1.9% for 2025, compared to 2.1% at its quarterly meeting in June. “It is therefore narrowly returning to the range of price stability,” the SNB emphasized in the press release.
The central bank still expects growth in Swiss economic activity of “around 1%” for 2023, while gross domestic product (GDP) stagnated in the second quarter. If services have experienced “robust” growth, industry has “returned notably”, reflecting the “low level of global growth in the manufacturing industry”, “especially in Germany”, Switzerland’s leading trading partner in Europe.
According to the BNS, growth “should remain sluggish until the end of the year” due in particular to “weak external demand” and “loss of purchasing power” resulting from inflation.