Swiss central bank signals end of hikes, economists eye cuts in 2024
THE Swiss National Bank (SNB) kept its interest rates on hold and lowered its inflation forecasts on Thursday (Dec 14), which analysts saw as pointing to the end of recent rate hikes and heralding lower borrowing costs next year.
The SNB, which kept its policy rate unchanged at 1.75 per cent as expected in a Reuters poll, also said it would no longer focus on selling foreign currency and dropped any reference to future rate hikes.
Chairman Thomas Jordan sought to dampen expectations of cuts by highlighting continued economic uncertainties, but economists saw the announcement as a dovish shift.
The Swiss central bank kicked off a busy day for central banks across Europe, with the European Central Bank and Bank of England also expected to keep rates on hold later on Thursday, as inflationary pressure ebbs lower.
On Wednesday, the US Federal Reserve left interest rates unchanged and its chief Jerome Powell said it was likely done with monetary tightening.
Norway’s central bank, however, surprised with a quarter-point rate rise on Thursday, citing persistent inflation.
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In Switzerland, the SNB cut its own inflation forecast, saying it expected price rises to be within its 0-2 per cent target range in 2024 and 2025.
“We believe that monetary conditions at this moment are appropriate and we do not see any need to change policy,” chairman Jordan told a press conference.
“Underlying inflationary pressure has continued to decrease, slightly compared with September.”
Jordan declined to say whether this meant the SNB was now at a “pivot point” where it would look to cut rates in future, saying only the central bank would continue to look closely at inflation in the coming months.
No more tightening forecast
Still, it seemed the era of rate hikes, which have lifted the central bank’s benchmark from negative 0.75 per cent over the past 18 months, was over.
“It is today very clear that we do not forecast any tightening given the situation so far but we will look very carefully at the inflation outlook next time,” Jordan said.
The SNB also said it was also no longer focusing on foreign currency sales, a tactic that helped dampen imported inflation by supporting the value of the Swiss franc which last week hit its highest value against the euro since 2015.
“In the past, the sales were helpful in order to bring inflation down,” Jordan said. “This is not any more necessary.”
The safe-haven franc remained weaker against the euro but a touch stronger against the softer US dollar after the announcement.
Economists said the overall tone of the SNB’s statement showed it was done with monetary tightening, but were divided on when it might start easing policy.
“The SNB dropped the wording of possible additional rate hikes, did not explicitly mention foreign currency sales anymore and revised its inflation forecast lower,” said UBS economist Maxime Botteron who expects a cut in June 2024.
Adrian Prettejohn at Capital Economics, called the statement “clearly dovish” and said the SNB could cut rates already in March.
But Charlotte de Montpellier at ING judged the SNB’s message as “only slightly dovish” and expected rate cut to come later, in December 2024.
“Given the inflation and growth forecasts and a much less restrictive rate level in Switzerland than elsewhere, I expect the SNB to take a much longer pause than the ECB and the Fed,” she said. REUTERS
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