By Indradip Ghosh
BENGALURU (Reuters) – The Swiss National Bank will again cut its key policy rate by 25 basis points on Dec. 12, according to an over-85% majority of economists polled by Reuters, with most expecting the rate to reach near-zero in 2025, lower than previously thought.
Financial market pricing is pushing more toward a larger 50 bps reduction given weak Swiss inflation and the SNB’s aversion to a strengthening Swiss franc, up around 2% against the euro since a September policy meeting.
Switzerland has the lowest inflation rate among major economies. But with the Swiss economy expanding at a moderate pace and the base cost of borrowing already at a meagre 1.0%, scope for a bigger reduction is limited.
Over 85% of economists, 27 of 31, in the Dec. 5-9 Reuters poll predicted the Swiss central bank would cut its main rate by 25 bps to 0.75% on Dec. 12, a few hours before the European Central Bank is expected to cut by the same amount.
Only four forecast the SNB to cut by 50 bps.
“Market pricing may make a 25bp rate cut a slightly hawkish surprise, but we continue to see no reason – and also little chance of lasting success in terms of the exchange rate – for larger cuts given the resilient economy and stable exchange rate,” Christian Schulz, deputy chief European economist at Citi, said.
But he expected the SNB to downgrade its short-term forecasts again, adding “the SNB’s guidance will likely remain dovish”.
LOW INFLATION
Swiss inflation rose to 0.7% in November, well below the middle of the SNB’s preferred 0-2% range and is the lowest among G10 economies. It is forecast to average just 0.7% and 1.0% in 2025 and 2026, respectively, according to poll medians.
The SNB was more modest in raising rates than major peers following the pandemic, only reaching 1.75% from a deeply negative rate, and has already cut by 75 bps since March.
Just over half of economists, 15 of 28, expect rates to fall to either 0.25% or zero next year. In a September poll, no economist had rates below 0.50% next year.
Switzerland already has the second lowest interest rate among major economies after Japan, which has taken rates up in baby steps this year to 0.25%.
In contrast to in Japan, the Swiss central bank is dealing with a strong currency that is keeping inflation low.
The Swiss franc will weaken but is unlikely to give up all of its recent gains over the coming year, a separate Reuters poll found.
That was based on expectations the European Central Bank will cut rates at least by 100 bps in 2025, more than the SNB, to shield the euro zone economy from expected U.S. tariffs early next year.
Karsten Junius, chief economist at J. Safra Sarasin expects sluggish euro area growth will hamper Swiss exports as that is where most of them go.
“We expect a further decline of inflation in the coming months such that risks to price stability are clearly on the lower side,” added Junius, who sees a 50 bps cut on Thursday.
(Other stories from the Reuters global economic poll)
