Swiss inflation surge won't halt planned rate cuts: Economists

SNB rate cuts: Economists project that despite a rise in Swiss inflation, the Swiss National Bank (SNB) will likely proceed with planned interest rate cuts. Data from the Federal Statistics Office revealed a faster-than-expected acceleration in April's annual inflation, reaching 1.4 per cent compared to March's 1 per cent.

This surge, surpassing the economists' forecast of 1.1 per cent, led to a strengthening of the Swiss franc against the euro and the dollar. On a monthly basis, prices in Switzerland increased by 0.3 per cent, exceeding the anticipated 0.1 per cent rate.

SNB silence continues

The SNB refrained from commenting on the matter. April marked the 11th consecutive month within the central bank's targeted 0-2 per cent range, prompting markets to anticipate a 60 per cent likelihood of a rate cut to 1.25 per cent at the upcoming June 20 meeting.

GianLuigi Mandruzzato, an economist at EFG Bank, highlighted that despite the unexpected April upturn, conditions remain conducive for the SNB to implement further rate cuts, particularly with energy prices easing and an expected normalisation in service prices due to subdued domestic demand. He suggested that a rate cut might occur as soon as the June meeting.

Alessandro Bee, a UBS economist, stressed that the April increase in inflation does not imply its entrenchment, such as through higher wages. Bee indicated that the SNB aims to transition monetary policy from a "restrictive" stance to a more "neutral" position in 2024, as the current 1.5 per cent policy rate is deemed restrictive. Therefore, a rate cut to 1.25 per cent in June seems probable, especially as the European Central Bank (ECB) is expected to commence its own rate cutting cycle around the same time.

(With Reuters Inputs)