SNB keeps rates at -0.75% but increases inflation forecasts

War in Ukraine is boosting inflation through higher oil and other commodity prices, SNB says
The Swiss National Bank

The Swiss National Bank maintained interest rates unchanged at -0.75% after its monetary policy meeting on March 24.

The SNB statement noted that year-on-year inflation has increased over recent months, reaching 2.2% in February. The central bank’s target is a range between 0% and 2%.

The increase in price pressures “is primarily due to the significant increase in the prices for oil products and goods affected by supply bottlenecks”, the SNB said in its policy statement. “The tight situation with regard to these products and goods is likely to persist in the coming months owing to the war in Ukraine.”

As a result, the SNB has considerably increased its near-term inflation forecasts, though not its medium-term projections. While in December it expected inflation to reach 0.7% at the end of the year, it now thinks it will be at 1.8%. However, it maintains its projections for the end of 2023 at 0.7%.

Some observers think the higher inflationary environment will allow the Swiss central bank to lift rates, abandoning negative rates. “We expect it to take the cover afforded by the more hawkish global backdrop and ECB and raise rates back to zero by the end of 2023,” said Capital Economics in a note.

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