The Swiss National Bank (SNB) left its policy rate unchanged at 1.75% in its latest interest rate decision. The impact of prior interest rate hikes was seen to be sufficient in countering the current inflationary pressures in Switzerland. With the headline and core inflation well below many other G20 countries and underneath the 2% SNB target, it was not a huge surprise that the SNB held back from another 25 basis points rate hike. You can see that core inflation is under control, under the SNB’s 2% target, and heading lower month by month since April of this year.

Too early to declare victory?

However, the SNB also stressed that it could not rule out further interest rate hikes as it might become necessary to ensure price ability over the medium term. This means the SNB will continue to monitor the developments of inflation very closely over the next coming weeks. Although, it should be noted that the SNB was displaying confidence with its inflation forecasts revised lower from June. This was despite the SNB noting that inflation globally is above many respective targets for other countries. If you look at the table below, you can see that the SNB anticipates less inflationary pressures moving forward than it did in June. Is it winning the battle?

What to watch going forward

The SNB noted that Swiss GDP stagnated in the second quarter of 2023 and expects growth to remain weak for the rest of the year. It expects Switzerland’s GDP to grow by one percent this year. This means that any slowing growth concerns would likely keep the Swiss National Bank on the current rate path. It also means that any high inflation prints out for Switzerland will increase expectations of the SNB hiking interest rates. In this way, the Swiss Franc should be pushed and pulled around according to the incoming data. However, it should be noted that the recent Swiss franc strength over the last few months looks vulnerable to a correction now.