Switzerland’s central bank maintained its key policy rate at 1.75% as expected, while revising down its inflation forecast for the upcoming year. The Swiss National Bank (SNB) expressed concerns about the uncertainty surrounding future decision-making.
Inflationary Pressure Decreases Slightly
Although annual inflation dropped to 1.4% in November from 1.7% in October, driven by lower inflation on goods and tourism services, the SNB expects inflation to rise again in the coming months. Factors contributing to this anticipated increase include higher electricity prices, rents, and sales tax.
Global Trend of Central Banks Holding Rates Steady
Similar to other major central banks, the SNB decided to keep interest rates unchanged. The Federal Reserve recently made the same decision, and the European Central Bank as well as the Bank of England are expected to maintain rates later. This trend follows a decrease in inflation rates.
Adjusted Inflation Expectations
The SNB released new forecasts regarding inflation. It predicts annual inflation to average 2.1% in 2023, 1.9% in 2024, and 1.6% in 2025, compared to previous estimates of 2.2%, 2.2%, and 1.9%, respectively. Adrian Prettejohn, Europe economist at Capital Economics, believes that this adjustment, combined with the SNB’s reduced focus on selling foreign currency, indicates a potential rate cut in March.
Economic Growth and External Risks
Switzerland’s economy is projected to expand by approximately 1% this year and between 0.5% and 1% in 2024. However, the SNB emphasizes the risk of a significant economic slowdown abroad as the main concern.