SNB Saw No ‘Immediate’ Need to Respond to Inflation Risks

(Bloomberg) — Swiss National Bank officials determined last month that risks to inflation have increased, but they still didn’t deem it necessary to respond for now.

As policymakers kept their interest rate at zero at the June 18 meeting, they concluded that price stability isn’t “jeopardized” currently, according to a summary of the discussion published Thursday.

“At present, inflation cannot be expected to rapidly rise above 2% or fall into negative territory,” the officials said. “Although inflation risks have increased in recent months and stronger second-round effects are possible, there is no immediate need for action.”

The document restates that medium-term price pressures are “virtually unchanged,” a stance the SNB has repeated since September. But the tone of the summary, pointing to possible consumer-price worries, suggests that the central bank might be looking toward an eventual rate hike.

Officials are taking a vigilant stance, even as inflation in Switzerland was most recently at 0.5%, firmly within their targeted 0-2% range. In June, they raised their projection for prices slightly throughout their forecast horizon.

“Inflation risks are currently to the upside due to possible second-round effects,” the summary said. “Although there is no sign of corresponding implications in the data thus far, the potential for such effects to emerge in the future cannot be ruled out.”

The document didn’t offer much in the way of explanation about exactly why the SNB chose to evolve its verbal threat on the franc, preserving language on their willingness to sell it while adding the proviso “if necessary.”

At the time of the decision, hostilities in the Middle East had ceased, though officials including President Martin Schlegel were wary of a renewed flare-up that could reignite inflows into the currency.

“Due to the uncertain geopolitical situation, the risk of strong Swiss franc appreciation remains,” the SNB policymakers said. “If necessary, the SNB’s willingness to intervene in the foreign exchange market should therefore remain increased in order to counter a rapid and excessive appreciation of the Swiss franc, which would jeopardize price stability in Switzerland.”

What Bloomberg Economics Says…

“On the policy stance, the minutes confirmed that the SNB is well placed to wait. Deflation risks have eased, inflation remains contained and the currency has weakened. Its accommodative policy is cushioning the economy against the current energy and growth shock, the minutes suggest.”

—Jean Dalbard, economist. For full REACT, click here

Switzerland’s rate has been at zero for more than a year after a cut last June. Most economists expect the SNB to leave it unchanged until the start of 2028 and then to raise them, according to a Bloomberg survey.

While Swiss consumer-price growth has picked up because of higher energy costs, it remains much weaker than in other advanced economies such as the euro zone or the US.

–With assistance from Naomi Tajitsu.

(Updates with more inflation comments in fourth paragraph)

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