Swiss Inflation Higher Than Expected in February

Inflation Higher Than Expected
Swiss inflation went up a higher than expected rate in February, as governmental data showed on Monday. Inflation increased by 3.4% year on year, while in January index of consumer prices was at 3.3%. The Swiss National Bank’s target for price stability is between 0 and 2%, so inflation was well above it in past months. Inflation in February surprised economists, as Credit Suisse expected 2.9% and UBS, J. Safra Sarasin – only 3%. What mainly contributed to inflation last month were rising rents, more expensive petrol. Core inflation, calculated without taking into the account volatile items like food or fuel, was up 0.8% from January and 2.4% from February 2022. 

Interest Rates Hike on the Cards
That high, as for Swiss standards, inflation, means the interest rates hike in March is most definitely on the cards. The policy decision of the SNB is due to be announced on March 23. The market sees a 91% probability of a 50 basis point increase from the current level of 1%. "I think a 50 basis point rates increase in March is nailed on especially after this reading. We currently expect the SNB to raise rates 25 basis points in June, but if inflation remains high, we cannot rule out a 50bp increase, “ said Karsten Junius, an economist at J. Safra Sarasin. Meanwhile, Credit Suisse economist Maxime Bottero, on Monday raised his forecast for the SNB's policy rate, now expecting an increase to 1.75% in March, up from his previous forecast for 1.5%. Whereas for June he foresees a 50 basis point rise to 2.25%, up from his previous forecast for an increase to 1.75%. Interest rates hike is more certain now also due to the fact the recently Swiss franc exchange rate has been quite weak. 

Jordan’s Comments
The SNB chairman Thomas Jordan spoke on Tuesday about recent inflation. He stated that inflation is still low comparing to international data, though above the target. He also claims that strong exchange rate of CHF has protected Switzerland from even higher inflation due to import. Also he claimed that the monetary policy conducted by the SNB is still “too loose” and the bank do not rule out more tightening. “We are ready to sell currencies”, he said. Interest rates hike and interventions on exchange rate market can be used to achieve price stability again. 

Market Reaction
Swiss franc exchange rate reacted moderately to higher inflation and Jordan’s comments. EUR/CHF went negative and tested for a moment daily lows around 0.9920/25.