ZURICH: The Swiss National Bank has entered “wait and see mode” it said on Thursday after a surprise decision to pause its current cycle of interest rate hikes.
The SNB held its policy interest rate unchanged at 1.75%, noting that inflation has ebbed lower in Switzerland, but said a further tightening cannot be ruled out.
The decision marked the first time the central bank has not hiked rates since March 2022, and ran counter to forecasts in a Reuters poll which had predicted a 25 basis point increase.
The freeze comes after Swiss inflation came in at 1.6% in August, the same level as in July - within the SNB’s goal for price rises of 0-2%.
“The situation allows us to wait for now and review at the next monetary policy measures we have taken to date are sufficient to keep inflation within the price stability range on a sustainable basis,” SNB Chairman Thomas Jordan told reporters. Still, Jordan kept the prospect open of further hikes.
“We will not hesitate to tighten our monetary policy further if necessary in order to keep inflation below 2% on a sustainable basis,” he said.
The SNB diverged from the European Central Bank, which raised its key interest rate to a record high of 4% last week, although the US Federal Reserve kept its rates unchanged on Wednesday.
Sweden’s Riksbank is also expected to raise its rates on Thursday, while the Bank of England and Norway’s central bank also meet on Thursday.
In Switzerland, five consecutive interest rate hikes totaling 250 basis points have helped drive inflation down from last year’s peak of 3.5% and keep it within the central bank’s 0%-2% target for the past three months.
“The significant tightening of monetary policy over recent quarters is countering remaining inflationary pressure,” the Swiss central bank said in a statement. Karsten Junius, an economist at J. Safra Sarasin, said the decision showed the SNB’s independence of the ECB and other central banks.
“It left its policy rate unchanged as inflationary pressure has moderated, the Swiss franc has appreciated and the economy is showing signs of slowing down,” he said.
“We also welcome the communication of the SNB, indicating that another rate hike is possible,” he added, calling the decision a “hawkish pause.”
The SNB maintained its 2.2% inflation forecast for 2023 and 2024, but trimmed its outlook for 2025 to 1.9% from the 2.1% it predicted in June.
The central bank also maintained its forecast for economic growth of around 1% this year.
The Swiss government on Wednesday said it expected the country’s economy to grow by 1.3% in 2023 and 1.2% in 2024.
It forecast Swiss inflation to be 2.2% this year and 1.9% in 2024.
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