(Bloomberg) — For the Swiss National Bank, rising global inflation may have changed its view of the franc’s strength. In March, the Swiss currency even reached parity with the euro for a short time, which previously would have been perceived mainly as a risk for the export economy. Today’s monetary policy decision in Zurich is likely to focus on the dampening effect that appreciation has on inflation.
While the European Central Bank appears to have gone hawkish in the face of inflation fears, the SNB is likely to keep the world’s lowest key interest rate for longer. “The SNB is not in the same situation as the eurozone or the US,” says Maxime Botteron, an economist at Credit Suisse Group AG. “There is no urgency to tighten monetary policy.” Botteron expects the SNB to wait until June 2023 with its first rate hike.
Under the chairmanship of Thomas Jordan, the SNB remains one of only four central banks in the world to use negative interest rates. At -0.75%, the penalty rate is even more drastic than in the euro area, in Denmark and in Japan.
Compared to other major economies, inflation in the Confederation is significantly lower. It is currently at 1.9%. Meanwhile, consumer prices in the euro zone rose 5.9% recently and as much as 7.9% in the US.
The franc offers a strong buffer against inflation. Although Russia’s invasion of Ukraine has pushed up energy costs, the State Secretariat for Economic Affairs last week forecast inflation of just 1.9% this year, before slowing to 0.7% by 2023. by the SNB is 2%.
For this reason, economists assume that the central bank will not further tighten its formulations on the franc. More recently, he called the coin “highly valued.” The war in Ukraine caused an inflow to the franc and allowed it to appreciate so much that it reached parity with the euro. The Swiss franc later eased again and is currently trading at around 1.02 per euro.
SNB Vice President Fritz Zurbrügg said this month that it was important for Switzerland to keep interest rates lower than in the euro zone to avoid an appreciation of the franc.
“There is no need to act and it is better to stop and watch developments,” says Alexander Koch, an economist at Raiffeisen Switzerland. “The SNB will lag behind the ECB and other central banks because it can afford it.”
Title of the article in the original:
Swiss Franc Curb on Inflation Keeps SNB Calm: Decision Guide
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