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Swiss National Bank expected to resist global rate-hike trend

The Swiss National Bank will likely hold fast to the world’s lowest interest rate when it gives its latest monetary policy update on Thursday, resisting an upward trend at other global central banks, according to analysts polled by Reuters.

All 33 economists polled expected the SNB to keep its policy rate locked at minus 0.75%, with the earliest change from any respondent not expected until September.

Although the franc recently rose above parity against the euro, albeit briefly, no one expected the central bank to shift from its ultra-expansive stance employed for the last seven years.

“Parity is more of a buzzword for analysts and financial commentators than it is for a central bank, which looks more at fundamentals,” said GianLuigi Mandruzzato, an economist at EFG Bank.

“Our model for fair value is one franc buying slightly more than 0.90 of a euro, because of the huge inflation differential over the last 12 to 18 months. So the current rise in the franc is not that big an issue for the SNB.”

SNB Chairman Thomas Jordan and his governing board are also expected to resist pressure to hike rates to combat Swiss inflation, which hit 2.2% in February – above the SNB’s 0-2% target and its highest level since 2008.

The SNB’s stance is aided by the fact that although Swiss prices have risen, it is not at the same level seen in the euro zone, Britain or the United States, which have recently seen inflation hitting 5.9%, 5.5% and 7.9%, respectively.

The U.S. Federal Reserve reacted last week by raising interest rates for the first time since 2018, while the Bank of England has also hiked. read more

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Most analysts – 10 of 14 who answered the question – expected the SNB to wait for the European Central Bank to start raising interest rates before it followed suit. Currently, markets expect two rate hikes by the ECB this year.

“While Swiss inflation rose above 2% in February for the first time since October 2008, the fact it remains much lower than in the euro zone also means Swiss policymakers are less pressed to tighten policy,” said David Oxley, at Capital Economics.

Most analysts still expect the SNB to keep its description of the franc as “highly valued” and perhaps increase its verbal interventions and foreign currency purchases in future.

“We forecast the SNB to keep interest rates on hold at -0.75% this year,” said Oxley. “However, we suspect the SNB will take the cover afforded by the more hawkish global backdrop and ECB to back away from its extreme policy footing next year, and policymakers will raise the policy rate to the heady heights of zero by the end of 2023.”

(This story corrects currency in 5th graf, no other changes.)

Polling by Prerana Bhat and Sujith Pai; Reporting by John Revill; Editing by Bernadette Baum

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