Swiss National Bank joins club for 75 basis point rate hike on September 22, inflation still to peak – Reuters poll

Swiss National Bank joins club for 75 basis point rate hike on September 22, inflation still to peak – Reuters poll

By Indradeep Ghosh

BENGALURU (Reuters) – The Swiss National Bank will join the club of a 75 basis point interest rate hike on Thursday to stifle inflation that has reached three-decade highs, economists polled by Reuters said, and they also said price increases had not yet peaked despite the strong inflation. Currency.

Last week, SNB President Thomas Jordan expressed similar concerns and stated that inflation expectations were more uncertain than usual, indicating that more rate hikes are needed.

This was bolstered by the expectation that the Swiss franc would increase its interest rate to its strongest level against the euro since January 2015 on September 15, despite a similar 75 basis point hike from the European Central Bank earlier in the month.

A strong franc, which “will help rather than hurt”, according to the Swiss National Bank, is likely to maintain these gains over the coming months as further price hikes are likely to be lifted in-store.

15 of 23 economists expect the Swiss National Bank – currently the only central bank in the world with a negative rate policy, at -0.25% – to rise by 75 basis points on September 22 to 0.50%, in line with market prices.

Someone predicted a 100 basis point rise. The rest expected a 50 basis point rise.

โ€œThe Swiss National Bank is taking advantage of the room for maneuver created by the ECBโ€™s 75 basis point increase at its September meeting,โ€ said Alessandro P, an economist at the European Central Bank. โ€œHigh inflation and an inflated Swiss franc are likely to hardly push the SNB to use This space.” UBS.

โ€œStrong rallies in the gas and electricity market in the short term suggest that inflation could be higher than expected. We believe the Swiss National Bank may follow the ECBโ€™s September monetary policy assessment and raise interest rates from -0.25% to 0.50%.โ€

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A solid majority of economists, 14 of 17, who answered a separate question, said chances are low, with the SNB raising 100 basis points as the Bank of Canada did recently. Markets are pricing around a 47% chance of such a rally.

โ€œInvestors expect the SNB to tighten the screws significantly at its upcoming meetings, but we think they are ahead of themselves,โ€ said Jack Allen Reynolds, chief European economist at Capital Economics.

โ€œAfter all, while headline inflation is historically high, it is low by international standards…the bank appears comfortable with a strong franc halting imported inflation.โ€

The Swiss National Bank recently walked away from a years-long campaign to rein in the safe-haven currency, the strength of which has constrained its export-reliant economy.

However, 10 out of 15 economists said inflation, which has remained above the SNB’s target range of 0-2% for seven consecutive months, has not yet peaked. Most economists said it will peak sometime in the next quarter.

Price pressures will remain high beyond the fourth quarter and are not expected to fall below 2% until 2024.

The majority of economists expected the bank to rise by 25 basis points in Q4 2022, Q1 2023, and Q2 2023, bringing the rate to a peak of 1.25%. However, all but one of the economists said risks tilted toward a higher final rate than they had expected.

The European Central Bank, for its part, is set to raise key interest rates significantly.

โ€œRising interest rates is not the only tool the Swiss central bank uses to tighten policy. Raising the Swiss franc โ€ฆ did not completely prevent Swiss inflation from rising, but it did keep it to 3.5% year-on-year at its peak compared to more than 9% in the euro area,โ€ Analysts at Bank of America (NYSE: Securities) note.

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โ€œThis policy mixโ€ฆ is why we ultimately expect a lower interest rate from the Swiss National Bank (SNB) than the 2.50% deposit rate that we believe the ECB will reach at the same time.โ€

(For other stories from the Reuters World Economic Poll)

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