The SNB is widely expected to leave its key policy rate unchanged at 0% later today, but the more interesting part will be what goes beyond the decision itself.
The latest survey of economists by Reuters show that a call for the SNB to hold today is unanimous, leaving the bigger focus to be on what the central bank says about inflation and the Swiss franc.
On the surface, there is at least some reason to talk about inflation again. Swiss inflation jumped in August, with the headline figure touching 0.8% – its highest since 2024. But when you dig beneath the surface, that number is much less worrying. Much of the increase came from energy, while core inflation remains at just 0.4%.
And that’s where Switzerland arguably continues to stand apart from much of the rest of the world.
The Swiss franc has been a major bane for the SNB over the years. The strong currency has been acting as something of a natural inflation buffer. Because of its relative strength, it makes imports cheaper and the SNB itself has acknowledged that the currency’s appreciation slows inflation.
With the central bank defining price stability as inflation sitting between the range of 0% and 2%, the latest 0.8% reading holds comfortably in that range. And if you want to look at it in a certain way, it is still closer to 0% than it is to 2%.
Switzerland’s recurring problem has been keeping inflation away from 0%, particularly when safe-haven demand sends the Swiss franc sharply higher. That explains why the SNB’s next policy steps could still look very different from its peers.
If disinflation returns, foreign exchange intervention will likely remain the first line of defence. The SNB has already said it has an increased willingness to intervene against excessive franc appreciation.
However, negative interest rates should not be completely ruled out either. Even though policymakers have been reluctant to return to unconventional monetary policy, due to their potential side effects, they may eventually find themselves backed into a corner with little other options left.
Given the above backdrop, it makes today’s 0% rate decision feel almost secondary.
What I’ll be watching more closely is the updated inflation forecast and, perhaps more importantly, the wording around the franc. I still don’t expect the SNB to make any changes on the latter though, at least not at this juncture.
They will still want to wait out the uncertainty from rising oil prices and bond yields, as well as look to assess how things play out in the Middle East in the medium-term.
But while much of the world is trying to stop inflation from staying too high, Switzerland may eventually find itself worrying about the exact opposite again in due time.
This article was written by Justin Low at investinglive.com.