SNB Might Need to Cut Interest Rates Again, Schlegel Says
(Bloomberg) — The Swiss National Bank may have to lower borrowing costs again as inflation slows, according to President Martin Schlegel.
“Over the next quarters, further rate cuts can become necessary to ensure price stability in the medium term,” he said in Cham on Tuesday. “The SNB now focuses on normalizing monetary policy and on ensuring that it doesn’t become too restrictive.”
The central bank has cut interest rates at all three of this year’s meetings and is expected to do so again at the final policy decision of the year in December.
Inflation has been continuously slowing and was at just 0.8% in September, with some economists now worrying it might undershoot the SNB’s target range of 0% to 2%. The October reading — due on Friday — will probably match that of the previous month.
The slowdown in consumer-price growth has been aided by the franc as it’s been appreciating since May — a move that helps suppress Swiss inflation by making imports cheaper.
Schlegel, who took over at the Swiss central bank’s helm this month, highlighted that the SNB stands ready to buy foreign currencies if this becomes necessary to ensure domestic price stability. With an interest rate of 1% — one of the world’s lowest — doing so could help officials to strike a balance between low inflation and limited easing space.
In terms of borrowing costs, economists expect policymakers to take the key rate down to 0.5% by March. Schlegel reiterated on Tuesday that negative rates remain “in the toolbox” and can’t be ruled out.
Meanwhile, the SNB predicts that Swiss output will expand about 1% this year, with Schlegel saying that economic growth will be “muted” in coming quarters. After that, a “step-by-step improvement” is expected in the medium term, he said.
Data published Wednesday showed that the KOF Economic Leading Indicator fell in October, defying economists’ expectations for an increase.
“The recovery of the Swiss economy is very sluggish,” the KOF said.
–With assistance from Kristian Siedenburg.
(Updates with KOF starting in penultimate paragraph)
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