The tectonic plates of monetary policy are moving among central banks, signaling the end of historically loose monetary policy in the face of higher inflation. Still, the Swiss National Bank will be in no hurry to change policy.
Since the SNB’s last monetary policy announcement on December 16, the Federal Reserve, Bank of England and European Central Bank adopted, to one degree or another, tighter policy.
Conversely, the SNB kept the key language in its statement unchanged, saying it remains willing to intervene in the foreign exchange markets as necessary and that the franc remains «highly valued.»
While a lot has changed since that meeting, the SNB won’t be hiking rates this year with moves from other central banks taking off some policy pressure. Moreover, inflation in Switzerland is far lower than in the Euro area.
Recent Policy Moves
At its January 26 meeting the Fed maintained the federal funds rate between 0 and 0.25 percent, but said that «with inflation well above 2 percent and a strong labor market, the committee expects it will soon be appropriate to raise the target range for the federal funds rate.» This phrasing was not in the statement following its meeting December 15.
Additionally, the committee will continue to reduce the monthly pace of its net asset purchases, planning to end them by early March.
The «Bank of England» was more aggressive than the Fed, with the monetary policy committee voting 5-4 to increase the bank rate by 0.25 percentage points to 0.50% with a minority calling for an increase 0.75%. On bond purchases, the committee voted unanimously to begin to reduce the stock of UK government bond purchases, by not reinvesting in maturing assets.
This brings us to the more dovish ECB.
Following its meeting February 3, the ECB released a rather convoluted statement on interest rates, saying «The governing council expects the key ECB interest rates to remain at their present or lower levels until it sees inflation reaching 2 percent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realized progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilizing at 2 percent over the medium term.» What does that mean exactly?
Clarity on ECB Rates
With Euro area consumer prices well above the ECB’s 2 percent target, rising 5.1 percent in January from a year ago, the ECB statement could use some clarity.
ECB governing council member Klaas Knot provided just that over the weekend.
In an interview with Dutch TV program «Buitenhof» (In Dutch) Knot said he expects a rate hike of 25 basis points in the fourth quarter of this year followed by another one in the spring of 2023.
SNB Will Follow ECB
UBS CEO Ralph Hamers also said in an interview with «Aargauer Zeitung» (In German) last week that he expects rates to rise in Switzerland only if interest rates are raised in the euro area first.
Following that timeline, the SNB will first raise rates in 2023, which Credit Suisse economist Maxime Botteron also says in his report published Monday, calling for the SNB to raise rates twice in 2023 to 0.5 percent.
Under this scenario, rates would still be at -0.25 percent.
The SNB will release its next monetary policy assessment on March 24.
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