ZURICH (Reuters) – The Swiss National Bank remains open to further interest rate hikes despite last month’s dip in inflation, Vice Chairman Martin Schlegel said in an interview published on Saturday.
Schlegel repeated the central bank’s mantra that increases from the SNB’s current 1.75% level could not be ruled out when he spoke with Schweiz am Wochenende.
Swiss inflation dipped to 1.7% in June from 2.2% in May, within the bank’s 0-2% target range for the first time since early 2022.
But in its most recent forecasts, the central bank said it expects price rises to be 2.2% this year and next year before ebbing to 2.1% in 2025.
“Our mission is to guarantee price stability, that means inflation should be in the range of 0-2%,” Schlegel told the newspaper.
“Despite the recent decline in inflation, underlying inflationary pressures have continued to rise,” he said. “There is still a risk of inflation becoming entrenched above 2% in the medium term, i.e. above the range we equate with price stability.”
The market currently sees a 63% chance of a 25 basis point hike by the central bank at its next meeting in September.
Schlegel said long term demographic factors like a shrinking working age population pointed to higher interest rates in future even after the current bout of inflation was defeated.
“This will make labour scarcer, which could mean higher wages and higher prices which would require higher interest rates,” Schlegel said.
“Baby boomers are retiring and are therefore more likely to reduce their saving. Therefore less capital could be available which would put upward pressure on inflation-adjusted interest rates.”
The switch to renewable energies and the accompanying large investments this needed could also push up inflation and interest rates, he said.
(Reporting by John Revill; Editing by Hugh Lawson)
