Zhitong Finance learned that the Swiss National Bank will announce its interest rate decision on Thursday. Economists have different expectations, with a slight majority expecting the Swiss National Bank to maintain interest rates. Currently, it has been three weeks since the decision makers of the Swiss National Bank made public comments. Since then, the market has been volatile, the Swiss franc has risen, and investors have been guessing the next move of the Swiss National Bank.

Regardless of the decision made by policy makers, their silence is just one factor that has cast a shadow on investors' prospects. Judging global monetary policy has become more difficult. The Bank of Canada and the European Central Bank cut interest rates for the first time this month, which is in sharp contrast to the Federal Reserve's increasing unwillingness to take action later this year.

Under the leadership of President Thomas Jordan, the policies of the Swiss National Bank have always been full of suspense and surprises. During his tenure, the Swiss National Bank has undergone many major changes, including canceling the upper limit of the Swiss franc exchange rate in 2015, raising interest rates for the first time by 50 basis points in 2022, and reducing interest rates by 25 basis points to 1.5% three months ago.

Traders have reduced the probability of the Swiss National Bank's interest rate cut this week from about 97% in April to about 60%. Economists are unsure about this, and 16 of the 28 economists surveyed by Bloomberg expect interest rates to remain unchanged.

Cut interest rates or hold steady?

Reasons to support the Swiss National Bank's interest rate cut include the possibility of lower inflation and the current weakness in exports dragging down economic growth.

Gero Jung, chief economist at Mirabaud in Geneva, said that the current inflation is mainly driven by the rise in rents, which will prove to be temporary.

"Switzerland is an open small economy," he said last week. "From a global perspective, interest rates should be cut."

"Jordan has stated that the current level of interest rates is still restrictive," said Karsten Junius, chief economist at Swiss Julius Baer bank. "So I firmly believe that the Swiss National Bank will cut interest rates again."

However, the inflation rate has remained in the upper half of the Swiss National Bank's target range of 0-2%, and the economy has shown resilience so far. These are reasons to keep interest rates unchanged.

Maeva Cousin of Bloomberg Economics emphasized that the Swiss economy has maintained a growth trend for three consecutive quarters and is basically at the potential trend level. She also said that if officials cut interest rates now, the Swiss National Bank will need to upwardly revise its inflation forecast.

"Policymakers may be more willing to wait for some unexpected downside signals in prices, which would allow them to cut interest rates without raising inflation forecasts," she said in a report.

The relatively low level of interest rates in Switzerland on a global scale has limited the Swiss National Bank's room to further cut interest rates. This is especially important for the Swiss franc, and some believe that the impact of the Swiss franc on the economy may be even greater than the cost of borrowing.

David Marmet, chief economist at Zurich State Bank, said that reserving some room for maneuver is meaningful to prevent certain geopolitical events from causing the Swiss franc to appreciate again.

The dilemma of the Swiss franc

The volatility of the Swiss franc has also intensified uncertainty. Last week, French President Macron called for early French elections, prompting investors to buy Swiss francs as a safe-haven currency, and the Swiss franc-euro exchange rate reached its largest increase since December last year.

It is not yet clear how Swiss National Bank officials will view the volatility of the Swiss franc. They have long controlled the Swiss franc exchange rate through intervention, but if they want the Swiss franc to depreciate, cutting interest rates is also an option. On the other hand, avoiding any loose policy may also limit imported inflation.

Strategists point out that Jordan said in his recent speech that the over-weakness of the Swiss franc is most likely to cause Swiss inflation to rise. Kamakshya Trivedi of Goldman Sachs said that the Swiss National Bank may even reintroduce the phrase "ready to sell foreign exchange at any time" in its statement, which was canceled last December.

Regardless of the outcome of the Thursday meeting, the differences between cutting interest rates and not cutting them may be relatively small. Last week, GianLuigi Mandruzzato, senior economist at EFG Bank, said that maintaining interest rates while issuing a loose trajectory or cutting interest rates but implying that future interest rates will remain stable could have similar effects.

彼は、「これは経済やマーケットにあまり影響を与えない」と述べた。