The Swiss National Bank kept its benchmark rate unchanged on Thursday and turned more dovish as it lowered the inflation forecast and altered the policy stance on forex interventions.
The SNB Governing Board, chaired by Thomas Jordan, decided to hold the policy rate at 1.75 percent.
The SNB policy rate has been raised by a cumulative 2.5 percentage points since June 2022 to bring inflation within the price stability range.
Banks’ sight deposits held at the central bank were remunerated at the SNB policy rate up to a certain threshold, and at 1.25 percent above this threshold, the bank said.
The SNB repeated that it is willing to be active in the foreign exchange market as necessary.
But the bank skipped the message that in the current environment, the focus is on selling foreign currency.
Jordan said inflation is likely to increase again somewhat in the coming months but inflation forecast is now within the price stability range over the entire forecast horizon.
The chairman said “…we are no longer focusing on foreign currency sales.”
“This reflects that monetary conditions are currently appropriate,” added Jordan.
The SNB trimmed its inflation forecast for the entire horizon.
Citing lower-than-expected inflation so far, the projection for 2023 was reduced to 2.1 percent from 2.2 percent estimated in September.
The inflation outlook for 2024 was downgraded to 1.9 percent from 2.2 percent due to the weakening of inflationary pressures from abroad and softer second-round effects.
Inflation is seen at 1.6 percent in 2025 compared to the previous estimate of 1.9 percent.
The bank said the domestic economy will grow around 1 percent this year. For 2024, the SNB forecast growth of between 0.5 percent and 1 percent.
The bank observed that the forecast for Switzerland is subject to high uncertainty. A more pronounced global economic slowdown is considered as the main risk.
The dovish monetary policy statement that placed less emphasis on selling forex assets and lowered inflation forecast support the view that the central bank will cut rates at the next meeting in March, Capital Economics’ economist Adrian Prettejohn said.
The economist expects a total 75 basis point reduction in 2024.
However, ING economists said there is nothing to suggest that rate cuts will be forthcoming soon. The SNB is likely to take a much longer pause than the US Federal Reserve and the European Central Bank.
ING forecast the first rate cut to come in December 2024 and also expect the scale of the rate cuts to be much smaller than elsewhere.
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