Swiss Inflation Hits Three-Year Low, Signaling Further SNB Rate Cuts

Decrease Driven by Cheaper Food, Clothing, and Household Goods

The minimal increase in prices is largely attributed to cost reductions in essential sectors. Cheaper food, clothing, and household goods have contributed to the subdued inflation. On a month-to-month basis, prices actually declined by 0.1%, highlighting a deflationary trend in certain consumer markets.

Swiss Franc Weakens Amid Expectations of SNB Rate Cuts

Following the release of the inflation data, the Swiss franc fell to a five-week low. This depreciation is linked to investor anticipation that the SNB will lower borrowing costs to prevent inflation from dropping below its target range of 0-2%. The central bank has remained tight-lipped, declining to comment on the recent figures.

Market Predictions for Upcoming SNB Meetings

Market analysts currently assign a 72% probability that the SNB will cut interest rates from 1% to 0.75% at its next meeting scheduled for December 12. There is also a 68% chance of an additional reduction to 0.5% in March. These expectations reflect growing concerns over the persistently low inflation rates.

Economists Anticipate More Aggressive Monetary Policy

Economist Karsten Junius of J. Safra Sarasin notes that the declining inflation is becoming increasingly uncomfortable for the SNB. "The SNB will certainly cut rates by 25 basis points in December, although I wouldn't be surprised if they opt for a 50 basis-point cut," he stated. Junius also predicts further cuts in March and June, potentially bringing the rate down to 0.25%. He anticipates that the SNB may escalate currency interventions in early 2025 to address the situation.

Similarly, GianLuigi Mandruzzato, an economist at EFG Bank, points out that October's inflation is significantly lower than the SNB's latest forecast of 1% for the fourth quarter. "The data raises the chances that the SNB will consider a larger rate cut of 0.5% instead of the standard 0.25% cuts implemented since March," he explained. Mandruzzato highlights the increased risk of negative inflation in 2025, even if only temporarily.

Conclusion

The unexpected drop in inflation intensifies pressure on the Swiss National Bank to take more decisive action. As the threat of deflation looms, the likelihood of more substantial interest rate cuts grows. The SNB's upcoming decisions will be closely watched, as they hold significant implications for Switzerland's economic stability and monetary policy trajectory.