SNB expected to cut rates by 25 basis points on Thursday – UBS

Investing.com — The Swiss National Bank is due to release its next monetary policy statement on Thursday, with analysts at UBS expecting officials to cut interest rates by 25 basis points.

In a note to clients, the analysts argued that a more “expansive” policy stance may be warranted “should inflationary pressures decline further and the growth outlook fail to improve.”

Price pressures have been below the SNB’s projections so far in the third quarter, they noted. Swiss inflation came in at 1.1% last month, the slowest pace among G10 economies and nearly in the midpoint of the SNB’s 0%-2% target range.

Meanwhile, business surveys indicate that broader economic activity has been weak over the summer. Unemployment has also continued to trend upward slightly since the first half of 2023.

The UBS analysts also flagged that the Swiss franc has appreciated in value against both the US dollar and euro since the SNB’s last policy decision in June, when policymakers cut rates for the second time this year. In March, the SNB rolled out an unexpected quarter-point reduction, its first drawdown in nine years.

The case for a cut at the SNB’s third consecutive meeting is subsequently “strong,” the UBS analysts argued. They said the risks to the forecast stem mainly from the SNB choosing a larger 50-basis point cut.

“Currently, there is around a one-in-four chance of a 50-[basis point] cut priced in, according to SARON future pricing,” the analysts said. “This repricing of policy rate expectations has increased the pressure on the SNB to lower its policy rate by 50 [basis points] at its September meeting. Failing to meet these expectations would likely cause the Swiss franc to appreciate.”

The prior cuts have placed the SNB at the forefront of a recently burgeoning trend of global central banks lowering rates following a period of tighter policy aimed at quelling inflation.

Last week, the Federal Reserve announced a super-sized half-point cut, while the European Central Bank has slashed rates twice in three months.

Economists largely expect the SNB to bring rates down to 1% this month before keeping borrowing costs on hold in December, according to a poll of economists conducted by Reuters.