Swiss Inflation Falls Short of Expectations, Increasing Odds of a Rate Cut

NB's Interest Rate Strategy

The SNB, which aims to keep inflation within a target range of 0% to 2%, has already reduced its benchmark rate by 25 basis points three times in 2024, leaving it at 1%. Markets now assign a 71% probability of a 50 basis-point cut and a 29% chance of a 25 basis-point reduction at the central bank's next policy meeting on December 12. Previously, market consensus leaned toward a more modest 25 basis-point cut.

Economist Projections for Further Cuts

Karsten Junius, chief economist at J. Safra Sarasin, believes the risks to price stability have diminished and expects a 50 basis-point rate cut in December, revising his earlier prediction of 25 basis points. He also anticipates two additional 25 basis-point reductions in March and June 2025, potentially bringing the SNB's benchmark rate to 0%. While Junius acknowledges the possibility of negative interest rates, he describes the likelihood as a "high hurdle."

Potential for Negative Interest Rates

The SNB has signaled openness to introducing negative rates if necessary. Junius suggests the central bank could also employ foreign exchange interventions to manage the Swiss franc's value and mitigate the risk of imported deflation. "Currently, however, we do not see a clear and sizable overvaluation of the franc," he noted, indicating that such measures might not be imminent.

Conclusion

With inflation remaining subdued and below expectations, the SNB faces increasing pressure to act decisively at its upcoming meeting. Whether through significant rate cuts or alternative interventions, the central bank's decisions will play a critical role in shaping Switzerland's economic trajectory in the months ahead.

November Inflation Below Predictions

Dec 3 - Swiss inflation rose less than anticipated in November, fueling speculation that the Swiss National Bank (SNB) may implement a larger interest rate cut at its upcoming meeting. According to the Federal Statistics Office, annual inflation edged up to 0.7% from 0.6% in October, below the 0.8% predicted in a Reuters poll of analysts. Month-on-month, consumer prices fell by 0.1%, aligning with expectations.

NB's Interest Rate Strategy

The SNB, which aims to keep inflation within a target range of 0% to 2%, has already reduced its benchmark rate by 25 basis points three times in 2024, leaving it at 1%. Markets now assign a 71% probability of a 50 basis-point cut and a 29% chance of a 25 basis-point reduction at the central bank's next policy meeting on December 12. Previously, market consensus leaned toward a more modest 25 basis-point cut.

Economist Projections for Further Cuts

Karsten Junius, chief economist at J. Safra Sarasin, believes the risks to price stability have diminished and expects a 50 basis-point rate cut in December, revising his earlier prediction of 25 basis points. He also anticipates two additional 25 basis-point reductions in March and June 2025, potentially bringing the SNB's benchmark rate to 0%. While Junius acknowledges the possibility of negative interest rates, he describes the likelihood as a "high hurdle."

Potential for Negative Interest Rates

The SNB has signaled openness to introducing negative rates if necessary. Junius suggests the central bank could also employ foreign exchange interventions to manage the Swiss franc's value and mitigate the risk of imported deflation. "Currently, however, we do not see a clear and sizable overvaluation of the franc," he noted, indicating that such measures might not be imminent.

Conclusion

With inflation remaining subdued and below expectations, the SNB faces increasing pressure to act decisively at its upcoming meeting. Whether through significant rate cuts or alternative interventions, the central bank's decisions will play a critical role in shaping Switzerland's economic trajectory in the months ahead.