Swiss central bank surprises with rate pause as tightening tames inflation
THE Swiss National Bank (SNB) on Thursday (Sep 21) paused its monetary tightening, defying expectations of another interest-rate hike to avoid adding constriction on a stalled economy.
Policymakers led by president Thomas Jordan left the key rate at 1.75 per cent, an outcome anticipated by only a small minority of economists surveyed by Bloomberg.
“The significant tightening of our monetary policy over recent quarters is countering remaining inflationary pressure,” Jordan said in Zurich. “It cannot be ruled out that a further tightening of monetary policy may become necessary.”
The euro jumped against the Swiss franc after the decision, climbing as much as 0.8 per cent to 0.9656 in its biggest gain since June.
The move, which contrasts with last week’s increase in the neighbouring euro area, suggests officials are reassured that inflation already below the SNB’s 2 per cent ceiling isn’t in danger of too much re-acceleration. It suggests more concern about growth, not least after recent gains in the franc.
The decision “maintains the tension by signalling a tendency towards higher interest rates,” said Karsten Junius, chief economist at Bank J Safra Sarasin, who predicted the hold. “This prevents key interest rate cuts from being discussed and priced in next.”
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The decision by the SNB, which unveils announcements only once a quarter, widens the gap in rates with its peers.
Borrowing costs there have increased by 250 basis points since starting out last year, compared with 450 basis points in the euro area and even more in the US.
The move puts Switzerland in position to keep pausing and let tighter monetary policy feed through the economy in tandem with counterparts around the world, in line with the “higher for longer” stance espoused by Federal Reserve Chair Jerome Powell.
That outlook was reiterated on Wednesday by US policymakers as they kept rates unchanged and signalled that they’re close to done with hiking. Powell said several times that the central bank can now “proceed carefully.”
Sweden’s Riksbank followed through with an expected quarter-point rate hike and left the door open to another move, though its own projections don’t fully anticipate one materialising.
In Norway, the central bank also raised rates and sees one more step, most probably in December.
Later on Thursday, Bank of England may raise rates in a final move that hangs in the balance after an unexpectedly slow inflation reading.
Where Switzerland stands out from other advanced economies – an what allows it to hold while the rest of western Europe is hiking – is its far weaker consumer-price growth.
In new estimates, the SNB projected inflation of 2.2 per cent in 2023 and 2024, and 1.9 per cent in 2025. That compares with prior forecasts for 2.2 per cent this year and next, and 2.1 per cent after that.
Growth stalled in the second quarter. The central bank still expects the Swiss economy to grow around 1 per cent this year – down from 2.1 per cent in 2022.
Jordan, who will hold a press conference in Zurich, will likely face questions about the strength of the franc, as investors are going to watch closely for any hints on SNB’s foreign-exchange sales, which have boosted the currency’s exchange rate in the past. BLOOMBERG
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