The Swiss National Bank will continue tracking its euro-area counterpart as it inches along the path toward tighter monetary policy, despite buoyant economic growth.
After the European Central Bank said it would keep interest rates at rock bottom through next summer and the SNB used its latest policy decision to highlight risks from protectionism to European politics, economists pushed back their Swiss rate expectations.
According to Bloomberg’s monthly survey, they now see a 25 basis-point increase in the deposit rate in the fourth quarter of 2019, a quarter later than previously predicted. The rate is currently at minus 0.75 percent, while the SNB also has a pledge to intervene in currency markets if needed.
The franc’s depreciation to the key 1.20 per euro mark earlier this year had prompted some speculation that SNB President Thomas Jordan could preempt the ECB. But that changed when the currency reversed course, strengthening amid political turmoil in Italy and the prospect of a U.S.-China trade war. Interest-rate futures also now only fully price in a Swiss rate rise in December of next year.
Economists were a bit more upbeat on the Swiss economy this month, and expect growth to touch 2.2 percent this year before cooling to 1.8 percent in 2019. Inflation is set to hover around 1 percent into 2020.
With the economy growing and inflationary pressures slowly building, “the SNB can very gradually start thinking about moving way from its extreme policies,” said Christian Schulz, director of European research at Citigroup. However, “given the risks to the exchange rate, in particular the euro-Swiss exchange rate, we think that the SNB will watch very closely what the ECB is doing.”
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