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Swiss central bank expected to leave interest rates unchanged

Steady as she goes - the SNB looks set to leave rates unchanged

(Keystone Archive)

Economists are predicting that the Swiss National Bank (SNB) will not cut interest rates at its meeting on Thursday, despite the United States Federal Reserve's half point rate reduction on Tuesday.

The consensus among economists is that the SNB will hold firm on its target range of 3.0 to 4.0 per cent, at least until the European Central Bank (ECB) changes its own interest rates.

Cantrade Private Bank economist, Marcus Allenspach, told swissinfo that the SNB's priority is to keep the Swiss franc-euro rate stable, so it will wait for the ECB to make the first move.

"We are expecting the ECB to cut interest rates sometime in the second quarter of the year. I expect the SNB not to act alone but to follow the ECB."

Andreus Höfert, an economist at UBS Warburg, agreed, saying the Swiss tend to follow the ECB's lead since European Union countries are Switzerland's major trading partners.

As to whether the EU would be influenced by the US rate cut on Tuesday, Credit Suisse economist, Walter Metzler, said the ECB was likely to hold firm.

"The US rate cut is being directed at the US economy - and there is a difference between the US and European economies at present," Metzler told swissinfo. "Monetary policies don't have to go 'in sync' at every point in time."

Unlike the Federal Reserve, which is concerned with stimulating a slowing economy, the ECB s chief concern is to keep a lid on inflation, which remains above the target range of two per cent within the Euro area.

Metzler said Switzerland was facing a similar situation to the EU, where a tight labour market, higher fuel prices, and a recent round of wage agreements are keeping inflation at about two per cent.

"I don't see a change in Swiss interest rates at this point, but there is a possibility that rates could be lowered within the next few months," said Metzler.

Swiss economists agree, though, that a European rate cut could be triggered earlier if the Federal Reserve reduces its rates again. "Further cuts in US interest rates could weaken the dollar and I don't think the ECB is interested in seeing too much volatility on the exchange rate," explained Marcus Allenspach.

However, he said the ECB and Switzerland will probably have already cut their rates by the time the Federal Reserve meets on May 19.

by Tom O'Brien


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