The only thing that the monetary conditions in Switzerland currently have in common with the wonderful winter landscape in many areas of the Alpine republic is the frosty temperatures. Not only did the economic momentum experience a severe setback in the autumn of 2018, the hopes of a return to the robust growth rates recorded between spring 2017 and mid-2018 have now also vanished. The same applies to the vague assurance that the inflation rate would move visibly close to the Swiss National Bank’s target level in the foreseeable future: even the economists of the SNB now expect the 2% threshold to be reached in the second half of 2021 at the very earliest.
The domestic leads were not the only factors spawning doubts among the Swiss central bankers over a turnaround in key interest rates towards the end of this year – which until recently had been considered possible. Indeed, the central bank has also noted a marked deterioration in the global underlying conditions of late. Last week, the Federal Reserve shifted towards a neutral monetary policy approach, and the increase in the main refinancing rate by the European Central Bank, which until recently had been generally expected for autumn 2019, has also been put on ice. Without a genuine hike in key interest rates in EMU in particular, the SNB lacks the necessary support to adopt tighter monetary measures itself. For the Swiss central bankers, the danger of preparing the ground for a further appreciation of the Swiss franc, and thereby additionally dampening the already low price pressure in the Alpine republic, is probably too great.
Just as speculation over higher key interest rates is out of place for the time being in Switzerland, the SNB is also unlikely to see any need to lower interest rates further into negative territory. Neither the fundamental development expected by DZ BANK Research for the coming quarters nor the euro-franc forecast suggest that such a step is warranted. Political factors – including a chaotic exit from the EU by the UK – could put the franc under tangible appreciation pressure at times. But even in an unfavourable scenario, currency market interventions on the part of the SNB are only expected to derive from this temporarily and to a limited extent.