Giles Coghlan LLB, Lth, MA
HYCM
Last week the SNB increased inflation to 1.75% from 1.50% and signaled that further rate hikes were likely. Headline inflation in Switzerland is the second lowest in the G20 at 2.2% y/y.
However, although the SNB acknowledged this falling inflation it was mainly attributed to lower inflation on imported goods, mainly oil products and gas.
Inflation fears
With average annual inflation projected at 2.2% for 2023 and 2024, and 2.1% for 2025, the SNB believes the battle against inflation is far from over. The next interest rate meeting on September 21 is expected to result in a 25 bps hike to 2.00%. Short-term interest rate markets anticipate a terminal rate of 2.12%, indicating optimism that the SNB is approaching the peak of its rates.
Rate expectations from here
The next interest rate meeting for the SNB is on September 21. Expectations are that the SNB will hike by 25 bps to 2.00%. Short-term interest rate markets see a terminal rate of 2.12%, which is lower than before the SNB meeting. So, rate markets are happier that the SNB is closer to reaching the peak of their rates.
What does this mean for the future?
Keep a close eye on incoming inflation data as it holds significant importance for the SNB’s rate policy. Higher-than-expected inflation could boost the Swiss franc (CHF) as markets anticipate higher rates. Conversely, a sharp decline in inflation data may lead to CHF depreciation, as hopes arise that the SNB will not need to hike rates again in September. Stay alert to incoming inflation data!
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