Swiss National Bank to Cut Rates by 25 BPS on Thursday, Hold in December – Reuters Poll

By Indradip Ghosh

BENGALURU – Economists surveyed anticipate that the Swiss National Bank (SNB) will reduce its benchmark interest rate by 25 basis points on Thursday, marking the third consecutive meeting with a rate cut. A slight majority of the polled economists believe the SNB will maintain its rates in December.

The central bank has opted for more cautious rate increases compared to other major central banks following the pandemic, starting its rate cuts earlier in March.

Swiss inflation recently dropped to 1.1%, the lowest among G10 nations, and is comfortably within the SNB’s target range of 0-2%.

Despite this, the Swiss franc has strengthened, gaining over 5% against the euro since hitting a low earlier in the year.

In a recent poll conducted from September 18 to 23, 30 out of 32 economists predicted a 25 basis-point reduction, lowering the main interest rate to 1.00%, which aligns with market expectations. One economist predicted a more aggressive 50 basis-point cut, while another anticipated no change in rates.

Analysts generally suggest that a more substantial cut, like the one implemented by the U.S. Federal Reserve last week, is unlikely given the limited policy space, with the SNB’s key rate currently at 1.25%.

Karsten Junius, chief economist at J. Safra Sarasin, stated, "The SNB is almost certain to cut its policy rate by 25bp to 1.00% this coming Thursday." He also noted that while the SNB is willing to enact policy changes rapidly when necessary, a 50 basis-point cut could signal excessive panic.

Approximately 55% of the economists polled expect the SNB to hold rates steady in December, with 16 predicting a year-end rate of 1.00% and others suggesting potential rates of 0.75% or 1.25%.

Forecasts from the poll indicate that the central bank is likely to cut rates to 0.75% in March, with no further changes expected until at least 2026.

If the consensus about this week’s decision holds true, the SNB would have reduced rates by a total of 75 basis points this year, a figure also anticipated for the European Central Bank (ECB), which has lowered its deposit rates recently.

The strengthening of the Swiss currency in recent months has been partly driven by expectations of continued reductions from the ECB.

SNB Chairman Thomas Jordan, set to retire at the end of September, has commented on the pressures the strong franc places on Swiss industry.

Adrian Prettejohn, European economist at Capital Economics, noted: "Policymakers will be concerned about the recent appreciation of the franc and may use rate cuts to manage its rise. If the franc continues to strengthen, the SNB could resort to substantial foreign exchange interventions."

Prettejohn also suggested that the SNB might be reluctant to make further rate cuts in response to a strong franc, as they want to preserve some room to adjust policy in the event of a domestic economic shock.

The poll indicates that Swiss inflation is expected to average 1.2% this year, with a projected decline to 1.0% in 2025, generally exceeding the government’s updated projections.