By Karsten Junius, chief economist at J. Safra Sarasin Sustainable Asset Management
As we expected the Swiss National Bank (SNB) cut its policy rate by 25 basis points (bp) to 1.5% at its quarterly meeting today. It also lowered its inflation forecast significantly for the coming years, most notably for 2025 from 1.6% to 1.2%. This also reflects that the SNB does not expect another increase in the mortgage reference rate anymore, such that future rent increases remain more limited. As usual, the SNB did not give any forward guidance for future policy decisions. However, the low inflation forecast makes another rate cut in June more likely. We expect two more cuts this year towards a level of 1.0% in December. While we would stress that the Swiss franc is still more highly valued in real terms than its medium average, Chairman Jordan declared that he has no priority whether to buy or sell foreign exchange. This points to a period with few interventions.
The Swiss National Bank (SNB) surprised markets once again and lowered its policy rate by 25 bp to 1.5%. We expected the rate cut as the inflationary pressures clearly are much lower than the SNB did forecast in December. This resulted in a downward revision to the conditional inflation forecast of the SNB from 1.9% to 1.4% for 2024 and from 1.6% to 1.2% for 2025. For the first time, the SNB also published an inflation forecast for 2026, which shows an inflation rate of 1.1%, almost in the middle of its target range. Inflation rates in January and February turned out to be much lower than expected by the SNB in December. In our view, the consumer price index ex (partly administered) rents best describes the underlying inflationary pressures. In February, it fell to 0.8% yoy. In contrast to the SNB, we still expect another increase of the mortgage reference rate in September, which is why our inflation forecast is a bit higher in the short term. Still, we believe that the resulting rent increase would be a one-off adjustment without implications for the medium-term inflation trend.
As usual, Chairman Jordan did not give any forward guidance for future policy decisions. Yet two remarks are noteworthy. Firstly, he indicated no preference for either buying or selling FX, hinting at a period with few FX-interventions. Secondly, he mentioned that external estimates of the neutral rate were in the range of 0%-0.5%. On the base of an inflation rate of 1%, this implies that monetary policy is still restrictive. We agree and expect two more rate cuts this year.
