Swiss National Bank: Policy rate seen on prolonged hold – Nomura

Nomura’s Anderson, Buckley and Szczepaniak expect the Swiss National Bank (SNB) to keep its 0.00% policy rate unchanged for the foreseeable future, with inflation below 1% and the neutral rate estimated at around 0%. They highlight Swiss Franc (CHF) strength and structural factors in Switzerland’s energy mix as reasons why inflation and the SNB policy rate have remained comparatively low, while they expect the SNB to diverge from the European Central Bank (ECB), where they forecast a further rate hike.

Swiss rates anchored at zero

"In Switzerland, we expect no change in rates for the foreseeable future, as inflation is low, but the policy rate is 0.00% and the SNB has expressed caution about unwanted side effects of a negative policy rate."

"However, during that period the two central banks often moved their policy rates higher and lower together, unlike in our current forecast. We think the SNB is unlikely to raise its policy rate any time soon with inflation running below 1% y-o-y, unlike the ECB, where we expect a further hike. "

"CHF appreciation has meant Switzerland has struggled with deflation, which has been a key contributor to the SNB’s policy rate being lower than the ECB’s in recent years. In the 2022/23 global inflationary shock, the effect on the Swiss economy was dampened considerably by the coincident strengthening of the currency, in addition to structural factors including the Swiss energy mix, which relies more than other countries on hydropower and nuclear."

"With inflation in Switzerland in the 0%-1% range, this measure of r* suggests that the SNB’s policy rate at 0.00% is close to neutral or slightly accommodative. This low neutral policy rate can therefore help explain why the SNB did not raise its policy rate by as much as the ECB did in 2022/23."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)