Recapping a Swiss surprise
|Summary
- Central banks were in the limelight this week, including the Swiss National Bank (SNB). At its June monetary policy meeting, SNB policymakers opted to raise its policy rate, which was a surprise in terms of timing, and also magnitude as the central bank delivered and 50 bps policy rate increase to -0.25%.
- With inflation having moved significantly higher, the SNB highlighted their actions were in an effort to protect against elevated inflation from becoming entrenched within the economy. In addition to the rate hike, SNB policymakers noted that the Swiss franc is no longer highly valued, and they now stand ready to intervene in FX markets in either direction.
- Going forward, we believe economic conditions are supportive of further SNB policy rate hikes. Activity growth is still sound, while SNB projections suggest inflation should remain somewhat elevated for the time being. In that context, we also forecast the SNB to lift policy rates by 25 bps in September 2022 as well as December 2022. In addition, we believe SNB rate hikes will continue in 2023 and expect another 25 bps rate hike in March 2023.
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