SNB Preview: Forecasts from four major banks, rising inflation pressures to result in some changes

Swiss National Bank (SNB) meets on Thursday, March 24 at 08:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of four major banks upcoming central bank's Interest Rate Decision. 

The SNB is set to keep rates on hold at -0.75%. Importantly, market participants will watch closely the language and classification of the Swiss franc.

Nordea

“Inflation is rising in Switzerland; the pace is much slower than in other developed markets, but it will put pressure on the central bank to act. The war between Russia and Ukraine does not help. Switzerland imports a relatively large volume of metals and energy, which will add to the already rising inflation pressure. Nonetheless, the current market turmoil has resulted in material safe haven flow and FX appreciation, which is why we expect the central bank to stay put for now.”

BBH

“SNB is expected to keep rates steady at -0.75%. We expect upward revisions to the inflation forecasts, but the trajectory should continue to suggest liftoff won’t be seen until 2024 at the earliest. Of note, forecasts for 2024 will be added at this meeting and will be a key part of the bank’s forward guidance. Swaps market is pricing in over 50 bp of tightening over the next 12 months, which seems too aggressive.”

Credit Suisse

“We don’t expect any change to the central bank’s main policy rate, which currently stands at -0.75%. The SNB’s room for maneuver is not as broad as it used to be given the rise in inflation, in particular when it comes to countering appreciation pressures on the Swiss franc. However, given the ongoing Ukraine conflict and the darkening economic outlook for the euro area attached to it, we do not think the SNB will risk raising its long-term inflation forecast closer to 2%yoy or possibly even above. Therefore, we expect the central bank’s long-term inflation forecast to remain visibly below 2% YoY. We believe the SNB will continue labelling the Swiss franc as ‘highly valued’ and will reiterate its willingness to intervene in the foreign exchange markets. We find this argument less and less convincing, though.”

Citibank

“SNB Policy Rate: Citi Forecast -0.75%, Consensus -0.75%, Previous -0.75% (Franc still highly valued). Despite more franc strength, a dovish signal from the SNB, such as raising the franc assessment to ‘overvalued’, seems unlikely as the franc has already moved away from euro parity without intervention. The strong franc remains convenient for the SNB for now given the prospects for a higher 2022 inflation trajectory from 1.0% to at least 2.0% (Citi 2.3%). More interesting is what happens thereafter – rising core inflation suggests the SNB is likely to change little in its assessment. We expect the SNB will ultimately follow the ECB on rate hikes, likely with a one-hike delay (March 2023 could be when SNB first hikes if the ECB commences lift-off in December) but if the ECB’s rate hike cycle gets stuck – then the SNB may shift towards sheet reduction. The SNB may only seek to weaken the franc to the 1.10 area vs EUR once global inflation rates decline next year.”