Swiss Inflation and Growth Point to Lower SNB Rates, Martin Says

(Bloomberg) — Switzerland’s inflation and output trends suggest the Swiss National Bank may need to cut borrowing costs again, according to Vice President Antoine Martin.

In his first speech since taking up his current post at the start of October, Martin highlighted that Swiss consumer-price growth is “reasonably low” and the economy is expanding.

“Most of these factors tend in the direction of a lower policy rate,” he said. “It could be multiple cuts in the future, although there are never any promises.”

The SNB reduced borrowing costs for a third straight meeting last month and signaled that more easing may follow. While not pre-committing to further cuts, SNB President Martin Schlegel told Bloomberg Television that such moves are “likely.”

In a subsequent speech, he also maintained that the institution stands ready to intervene in the franc if this becomes necessary to maintain domestic price stability. With one of the world’s lowest interest rates — currently 1% — buying foreign exchange could help the SNB to strike a balance between low consumer-price growth on one side and limited easing space on the other.

The strong currency poses a challenge in this context as it reduces the price of imports. Inflation was just 0.8% in September and some economists worry it might undershoot the central bank’s target range of 0% to 2%.

Addressing an audience of financial analysts, Martin said that consumer-price growth was slower than anticipated because of “smaller rent increases,” adding that “we fear we’ve seen smaller second round effect than we expected.”

Still, he highlighted that inflation is firmly in the SNB’s target range and that officials don’t anticipate that this will change.

The franc is hovering near its strongest level in nearly a decade versus the euro, supported by the view that the SNB will cut rates more gradually than other central banks, while refraining from intervening in the FX market just yet to weaken the currency.

Growing demand for safe-haven assets has also boosted the franc as the conflict in the Middle East escalates, while uncertainties surround the outcome of the US election. On top of that, it has gained from a dramatic unwind of carry trades, in which investors had used low-yielding currencies like the franc to buy higher-yielding assets earlier in the year.

Martin stressed that while the SNB is “able to use FX when it’s appropriate,” interventions are “a complementary tool,” and the central bank primary focus is the policy rate.  

He was made an SNB rate setter at the start of the year and then was promoted as part of a reshuffle that saw his predecessor — Schlegel — take the top job at the Swiss central bank.

–With assistance from Naomi Tajitsu.

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