Financial commentator app learned that the Swiss National Bank will announce its interest rate decision on Thursday. There are differences in economists' expectations, with a slight majority expecting the Swiss National Bank to maintain interest rates. It has been three weeks since the Swiss central bank's decision makers made public comments. Since then, the market has been turbulent and the Swiss franc has risen. Investors have been speculating about the Swiss National Bank's next move.

Regardless of what policymakers decide, their silence is just one of the factors that shroud investors' prospects. Determining global monetary policy has become more difficult, with Canada and the European Central Bank lowering interest rates for the first time this month while the Federal Reserve is becoming increasingly reluctant to act later this year.

Under the leadership of Chairman Thomas Jordan, the Swiss National Bank's policies are always full of suspense and surprises. During his tenure, the Swiss National Bank has undergone many major changes, including the lifting of the Swiss franc exchange rate cap in 2015, the first 50 basis point interest rate hike in 2022, and the 25 basis point interest rate cut to 1.5% three months ago.

Traders have cut the probability of a Swiss National Bank interest rate cut this week from about 97% in April to around 60%. Economists are uncertain about this, with 16 of 28 economists surveyed by Bloomberg expecting interest rates to remain unchanged.

To cut or hold?

Reasons to support another Swiss National Bank interest rate cut include the possibility of a drop in inflation and sluggish exports weighing on economic growth.

"Current inflation is mainly driven by rising rents, which will prove to be temporary," said Gero Jung, chief economist at Mirabaud in Geneva.

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

"Jordan has said that the current level of interest rates is still restrictive," said Karsten Junius, chief economist at Swiss Goldmans. "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 0-2% target range, 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 growth momentum 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 revise its inflation forecast upward.

"Policy makers may be more willing to wait for some unexpected downward signs in prices before raising interest rates without raising inflation forecast," she said in a report.

Switzerland's low interest rates, relative to global levels, limit the Swiss National Bank's room to cut further. This is particularly important for the Swiss franc, which some believe has an even greater impact on the economy than borrowing costs.

"It makes sense to keep some room for maneuver in case of certain geopolitical events that would lead to the further appreciation of the Swiss franc," said David Marmet, chief economist at the State Bank of Zurich.

The dilemma of the Swiss franc

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

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

Strategists point out that Jordan has said in recent speeches that the Swiss franc is too weak to most likely lead to a rise in Swiss inflation. Kamakshya Trivedi of Goldmans said the Swiss National Bank could even reintroduce the phrase "ready to sell foreign exchange" into its statement, which was canceled in December last year.

Regardless of the outcome of Thursday's meeting, the difference between cutting interest rates and not cutting interest rates may be relatively small. GianLuigi Mandruzzato, senior economist at EFG Bank, said last week that maintaining interest rates while sending signals of easing or cutting interest rates but suggesting that future interest rates will remain stable could have similar effects.

He said that this choice "will not have too much impact on the economy and the market".