The Swiss National Bank could end up hiking interest rates next month to contain inflation even if its counterpart in the euro zone pauses tightening, according to Credit Suisse economist Maxime Botteron.
(Bloomberg) — The Swiss National Bank could end up hiking interest rates next month to contain inflation even if its counterpart in the euro zone pauses tightening, according to Credit Suisse economist Maxime Botteron.
While past decisions have tended to go the same way, investors shouldn’t assume Switzerland’s policymakers will blindly follow the actions of their peers at the European Central Bank as they act against resurgent price growth, he said in an interview in Zurich.
“There is really no reason why, in the current situation, the SNB can’t hike longer than the ECB,” said Botteron. “Compared with the past, the interest-rate differential between the SNB and the ECB is relatively large. So there is certainly room for the Swiss to raise rates further.”
Switzerland’s central bank, which makes decisions only once a quarter, has lifted borrowing costs by half as much as the neighboring euro zone since it began a tightening cycle in June last year.
The remarks by Botteron, a veteran watcher of the SNB for more than a decade, underscore the quandary for traders weighing outcomes for the Sept. 14 decision of the ECB — described by Bloomberg Economics as being on a “knife edge” between a hike and a pause — and that of Swiss officials a week later.
Inflation in Switzerland is already below the central bank’s 2% ceiling, and data on Friday may show further slowing to 1.5%, according to the median forecast of economists. That’s the lowest rate in any advanced economy, but the SNB reckons it will accelerate again in coming months.
While Swiss and euro-zone central banks may well diverge, they could also end up making similar judgments, Botteron observed.
“Pausing on one decision and then tightening again could be a scenario for the SNB if inflation surprises to the upside,” he said.
The central bank president, Thomas Jordan, all but announced another hike for September at the last decision in June. But mid-term inflation forecasts have eased significantly since then.
“The likelihood of another rate hike has decreased” since the last meeting, Botteron said. “Right now, a September rate hike is no longer 100% priced in — in fact, the odds for it are below 50-50.”
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