In the eye of the storm of banking troubles, we think the Swiss National Bank will continue its hiking cycle this week, despite the last-minute efforts over the weekend to tie up the marriage between UBS and Credit Suisse. Inflation in Q1 so far is higher than the Bank anticipated, and unless proven otherwise by markets in the next few days, the SNB will see its actions over the weekend as an exercise in bomb defusal, allowing it to focus on its price stability mandate when it convenes later this week.
It’s a close call between 50bp and 25bp. The hawkish rhetoric of the Bank before last week’s chaos suggests that it would prefer to stay the course, but we think that volatile markets, and the likely economic impact from the takeover, will convince the Bank to pivot to less aggressive action after its 50bp hike in December and 75bp increase in September last year. We are revising down our call for this week’s interest rate hike to 25bp, from 50bp previously, taking the key policy rate to 1.25%. We then expect one more hike, also by 25bp, in June.
Claus Vistesen, Chief Eurozone Economist