The Swiss National Bank will probably need to keep raising interest rates to tame inflation, President Thomas Jordan said.
(Bloomberg) — The Swiss National Bank will probably need to keep raising interest rates to tame inflation, President Thomas Jordan said.
“We cannot exclude to tighten further,” Jordan told Bloomberg Television’s Francine Lacqua in an interview at the World Economic Forum in Davos on Thursday. “We are roughly at 1% now, and inflation is still above 2%. So it’s clear that some tightening is probably in the cards.”
Economists surveyed by Bloomberg currently expect another half-point hike to 1.5% in March, and will then hold at that level for a year.
The SNB traditionally gives no explicit forward guidance on its intended rate path, a position reiterated by Jordan. The central bank’s latest inflation estimate of 2.4% for 2023, which is above its 2% ceiling, does suggest further tightening however.
So far, the SNB has raised rates by 175 basis points in this cycle, compared to the ECB’s 250 and the Federal Reserve’s 425. While this lifted rates in real terms above the euro zone’s level given low Swiss inflation, analysts have warned that an increasing rate differential might trigger bets against the franc.
“We do not comment anymore really on the day-to-day volatility of the Swiss franc,” Jordan said. “Of course, the exchange rate remains extremely important for us, so if the Swiss franc becomes too strong again, we do not hesitate again to be active on the foreign-exchange market.”
The relative strength of the currency in recent years is “probably the most important” reason that inflation in Switzerland remains noticeably weaker than elsewhere, he said. Even so, the domestic price environment perceived by officials has shifted.
“Inflation is much broader,” he said. “It’s everywhere in services, in rents etc. So we cannot avoid these second-round effects, but we have to make sure that they do not dominate at the end the inflationary process.”
Companies previously resisted higher purchase costs and avoided passing on higher prices to customers, Jordan observed, adding that now, “the inflation dynamics changed quite substantially.”
“We will really make sure that inflation stays below 2% at the medium to long term,” he said.
Speaking concurrently at an event in Zurich, SNB Vice President Martin Schlegel covered similar ground to his colleague, noting that businesses have become more open to raising prices in order to restore margins.
The central bank expects an inflation uptick in Switzerland of 0.5% in January from the December rate of 2.8, due to higher electricity prices getting passed on to customers, according to Schlegel. While the Swiss economy would cool in 2023, a recession could be avoided, he said.
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