Swiss Economists See ‘Substantial’ Chance of SNB Half-Point Cut

(Bloomberg) — The Federal Reserve’s half-point interest-rate reduction has increased the chances that Swiss National Bank officials will follow with a move of the same size, economists say.

“Now the question for the SNB is not anymore whether to cut 25 basis points or to hold, but whether to cut 25 or to cut 50,” said Sebastien Gyger, chief investment officer of Banque Cantonale Vaudoise in Lausanne.

Gyger, along with most Swiss economists, stuck to his call that a quarter-point step is most likely but said that the Fed’s action along with the persistent strength of the franc could well motivate SNB policymakers to do more.

“The chance of a 50 basis-point cut is substantial,” said Stefan Gerlach, EFG Bank’s chief economist in Zurich, gauging the likelihood of such a move at 40%, against 60% for a quarter-point step.

What Bloomberg Economics Says…

“We expect the SNB to keep cutting, in September and December by 25 bps each time. However, there is a limit to how far that can go – with rates already as low as 1.25% and getting very close to the central bank’s own estimate of neutral, the SNB won’t be able to match other central banks’ cuts one-for-one for very long.”

— Maeva Cousin, senior economist. For full report, click here

While the majority of Swiss economists have seen a smaller-sized reduction as the most likely scenario for several months, currency investors have been pricing in more. Adding to the case for a dovish approach is the Swiss government’s new inflation forecast — published Thursday — which sees consumer-price growth slow to 0.7% next year, significantly below the SNB’s last estimate.

“There is a risk that the SNB will cut by 50 basis points,” said Maxime Botteron, an economist at UBS, whose base-case scenario is still for a smaller step. “I think it’s fair that the market sees a certain probability for this.”

(Adds Bloomberg Economics view after fourth paragraph.)

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