The SNB is widely expected to cut rates by 25 basis points at Thursday’s quarterly policy meeting. The Bloomberg survey suggests all but three forecasters expect a 25bp cut, with only one predicting the Bank will opt for a larger move of 50 basis points. The risk of a larger move by the SNB should not be overlooked, notes Jane Foley, FX strategist at Rabobank.
A 50 bp surprise would likely weaken the CHF
“This morning, Switzerland’s KOP Economic Institute lowered its growth forecasts for Switzerland to 1.1% and predicted inflation to be 1.2% in 2024 and just 0.7% in both 2025 and 2026. Swiss August CPI inflation came in at a softer-than-expected 1.1% year-on-year, down from 1.3% year-on-year in July.”
“This suggests that inflation is on track to miss the 1.5% inflation forecast for the third quarter that the SNB published in June. It then forecast inflation to be 1.4% in 2024, assuming rates remain at 1.25%. Clearly, a strong exchange rate brings downside risks to inflation.”
“As a result, we see the SNB incentivized to undermine CHF bulls with a larger-than-expected rate cut this quarter, especially given that its next policy meeting is not scheduled until December. A 50bp surprise would likely weaken the CHF, although the reaction may not be sustained.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
