Swiss Inflation Falls to Lowest Level in Over Three Years
ZURICH (Reuters) – Swiss inflation has fallen to its lowest level in more than three years, as reported by government data on Thursday, prompting analysts to predict that further interest rate cuts by the Swiss National Bank (SNB) are virtually certain.
According to the Federal Statistics Office (FSO), Swiss consumer prices rose by 0.8% in September compared to the same month a year earlier, marking the weakest increase since July 2021.
On a month-to-month basis, prices fell by 0.3%, primarily due to declines in petrol, accommodation, and holiday costs.
In response to weak inflation, the SNB last week reduced interest rates to 1.0%, marking its third cut this year, and indicated that more reductions are anticipated.
The SNB’s new chairman, Martin Schlegel, has emphasized the importance of price stability, aiming to keep inflation within a target band of 0-2%. He noted that the risks related to inflation appear more skewed towards the downside.
In his first public appearance since taking on his role, Schlegel stated that the SNB is not dismissing the possibility of interest rates falling into negative territory.
While the SNB declined to comment on the latest inflation figures, market predictions indicate an 82% likelihood of a 25 basis point cut at the upcoming December meeting, and an 18% chance for a 50 basis point cut.
Karsten Junius, chief economist at J.Safra Sarasin, commented that inflation dynamics in Switzerland remain “alarmingly weak,” with drops in import prices contributing to overall trends, while domestic inflation is mainly driven by rising rents.
“Today’s figures show that interest rate cuts by the SNB remain necessary,” Junius remarked, predicting a 25 basis point cut in December, with more cuts likely to follow.
“A further cut in March is almost certain, and the risk of additional cuts in June next year is also present,” added Junius.
GianLuigi Mandruzzato, an economist at EFG Bank, mentioned that low inflation heightens the chances of the SNB cutting interest rates by 50 basis points in December, although he still anticipates a 25 basis point cut.
“However, the likelihood that the SNB policy rate will bottom out at 0.50% in the first half of 2025 is clearly increasing,” Mandruzzato concluded.
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