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Swiss National Bank says inflation battle not yet won

By John Revill and Michael Shields

BERN (Reuters) – Swiss National Bank Chairman Thomas Jordan said it was too early to “sound the all-clear” on high inflation after the central bank hiked interest rates again on Thursday and hinted further increases were still possible.

The SNB raised its policy interest rate by 50 basis points to 1% – the central bank’s third hike this year as it stepped up its campaign to dampen the rise in prices.

Although inflation plateaued at 3% in November, it remains elevated by Swiss standards and outside the SNB’s price stability goal of annual increases of 0-2%.

“Inflation has declined somewhat since August,” Jordan told reporters. “While this development is welcome, it is still too early to sound the all-clear.

“It cannot be ruled out that further increases will be necessary.”

The rate increase, which comes as other central banks also tighten policy, took Swiss interest rates to their highest level since the global financial crisis 14 years ago.

Jordan declined to commit to a final rate the bank could reach before it halted increases.

“We are not specific about any possible terminal rate. We go from quarter to quarter … looking at the new inflation forecasts,” he said.

“If you look at our newest forecast that we published today, you will see that the longer end of the inflation forecast is slightly going upwards, and it is at 2.1%, so this is indicating that the current stance of monetary policy does not guarantee by itself that price stability is ensured.”

Jordan also said the SNB would continue to sell foreign currency in future “if this is appropriate” although there was no set target for how much to sell.

The SNB has been selling forex in recent months – a move that has supported the Swiss franc, whose strength has helped reduce the impact of inflation from more expensive imports.

Interest rates nevertheless remain the “key” tool of the SNB’s monetary policy, Jordan said, with currency market interventions taking a secondary role.

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Karsten Junius, an economist at J.Safra Sarasin, said he expected another 50 basis point hike in March before SNB rates eventually reach 2% in the middle of next year.

“The wording of the statement might be a tad more hawkish than the market might have expected as there is absolutely no indication that the SNB could pause or slow down its rate hikes,” Junius said.

The SNB had already raised rates in June and September after keeping them frozen at minus 0.75% for seven years as it fought the appreciation of the Swiss franc.

SNB officials had been vocal in recent weeks about the likelihood of rate increases.

Other central banks have also been increasing borrowing costs to stifle inflation caused by surging energy prices following Russia’s invasion of Ukraine and disrupted supply chains still recovering from the coronavirus pandemic.

The U.S. Federal Reserve raised its interest rates by half a percentage point on Wednesday. The European Central Bank and Bank of England were also forecast to tighten policy.

In its latest forecast, the SNB said it expected inflation of 2.9% in 2022, 2.4% in 2023 and 1.8% in 2024.

Inflation was then expected to rise again, to 2.1% in the third quarter of 2025.

“The fact that inflation forecasts are above 2% for the end of the forecast horizon is a clear signal, in my view, that the SNB will do more in terms of rate hikes,” said Charlotte de Montpellier, an economist at ING.

“I expect a final 50 bp hike at the March 2023 meeting, before stabilizing for a long time.”


(Reporting by John Revill, Editing by Paul Carrel, Kirsti Knolle and Catherine Evans)

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