SNB Kept Rates UnchangedSeptember 27, 2023
The Swiss National Bank has ended its run of five consecutive hikes of interest rates last week on Thursday’s meeting by deciding to keep rates unchanged at the same level of 1.75%. In June 2022 the SNB left the negative territory of interest rates and ever since kept raising them at every monetary policy meeting. At its previous meeting in June, the central bank of Switzerland choose a 25-basis point increase, after increments of as much as 75 basis points previously. This time it decided to keep rate at 1.75%. “The significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure. From today’s perspective, it cannot be ruled out that a further tightening of monetary policy may become necessary to ensure price stability over the medium term” the SNB said in a statement. As Swiss economy is in stagnation per data from second quarter and Swiss franc exchange rate has been doing great recently, this may mean there won’t be any hike of interest rates in this cycle.
Inflation in Switzerland
Previously the SNB kept on raising rates to battle inflation that as some points last year and this year was above the range target of 2%. At the same time the SNB stopped caring so much about Swiss franc exchange rate getting higher as appreciation of CHF was curbing inflation. In August inflation was at 1.6%, well below 2% target, while in eurozone it was at 5.3%. Additionally, the Swiss currency remains on of best performing among G10 peers. The Swiss Market Index was the only blue-chip stock index in Europe to trade in positive territory on Thursday when the SNB announced its decision. After it, it gained 0.4% in one hour. All these doesn’t mean though that the war against inflation is over, as the SNB Governor Thomas Jordan insisted while speaking to CNBC following Thursday’s decision. Policymakers are monitoring the situation closely, and further tightening may still be possible at the December meeting.
Risk to Swiss Economy
The SNB stated in notes after its meeting that the growth outlook for the global economy in the coming quarters “remains subdued,” while “pronounced slowdown in the global economy” cannot be ruled out. While inflation is “likely to remain elevated worldwide for the time being.” “Over the medium term, however, it should return to more moderate levels, not least due to more restrictive monetary policy,” the bank said. The SNB’s comment also pointed in a possible deterioration of the energy situation in Europe over the winter. All these may contribute to potential slowdown in Swiss economy, which is now expected to grow by just 1% this year. With global high inflation pressures and difficult situation in economy, hike of interest rates might be necessary still in the future.