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Switzerland Monetary Policy December 2023

Switzerland: Central Bank stays put in December

At its meeting on 14 December, the Swiss National Bank (SNB) kept its policy rate at 1.75%. Moreover, the Bank reiterated its willingness to intervene in FX markets, but dropped the previous meeting’s language that interventions would involve selling currency. This reflects the franc’s appreciation against other major currencies so far this year.

The decision to not hike further was driven by the fact that inflation has been in line with the SNB’s target of below-2% since June. On the flipside, given tight monetary abroad and uncertainty about the inflation outlook, it was premature to begin cutting rates.

The Bank’s forward guidance was open-ended. The Consensus among most of our panelists is for interest rates to fall next year, though some panelist see rates on hold until 2025.

On the outlook, Goldman Sachs analysts said:

“Given our revised expectation for an April ECB cut, we bring forward our expectation for the first 25bp SNB cut to March and expect one further cut in June. We do, however, only see limited room for the SNB to cut, and lower our terminal rate estimate by 50bp to 1.25%.”

In contrast, ING analysts see the Bank on hold for longer:

“The SNB is likely to take a much longer pause than the Fed and the ECB. Rate cuts will probably come, but much later than the other central banks. At this stage, we are expecting the first rate cut to come in December 2024, compared with the first rate cuts expected in the first half of the year for the Fed and the ECB. Moreover, the scale of the rate cuts is likely to be much smaller than elsewhere. Total rate cuts in 2024 and 2025 could be in the region of 50bp or even a maximum of 75bp in Switzerland.”

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