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SNB Anticipated to Reduce Rates by 25 Basis Points on Thursday – UBS

The Swiss National Bank is set to release its upcoming monetary policy statement on Thursday, with UBS analysts predicting a potential interest rate cut of 25 basis points.

In a client note, the analysts suggested that a more “expansive” policy approach may be necessary, especially if inflationary pressures continue to ease and growth forecasts do not improve. They highlighted that price pressures have been below the SNB’s expectations in the third quarter, with Swiss inflation recorded at 1.1% last month—the slowest rate among G10 economies and nearly at the midpoint of the SNB’s 0%-2% target range.

Additionally, business surveys reflect a sluggish economic activity over the summer months, with a slight upward trend in unemployment since the first half of 2023.

The UBS analysts also pointed out that the Swiss franc has strengthened against both the US dollar and euro since the last SNB policy decision in June, which included a rate cut—the second for the year. Earlier in March, the SNB made an unexpected quarter-point reduction, marking its first rate decrease in nine years.

The analysts argue that the case for a cut at the SNB’s third consecutive meeting is compelling. They noted that the risk to their forecast primarily comes from the possibility of a larger, 50-basis point cut.

Currently, the analysts suggested there is roughly a 25% chance of a 50-basis point cut being factored into market pricing. This shift in expectations has added pressure on the SNB to consider lowering rates by that amount in September, as failing to do so could lead to an appreciation of the Swiss franc.

These recent cuts have positioned the SNB at the forefront of a growing trend among global central banks that are reducing rates after a period of tightening policies aimed at curbing inflation.

Recently, the Federal Reserve announced a significant half-point cut, while the European Central Bank has reduced rates twice within three months. Economists largely anticipate that the SNB will lower rates to 1% this month before holding borrowing costs steady in December, according to a Reuters poll of economists.

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