The Swiss National Bank (SNB) defied consensus expectations on Thursday by maintaining its main policy rate at 1.75%, marking an end to its five consecutive quarter streak of increases. The decision was justified by the central bank citing the significant tightening of monetary policy over recent quarters as countering remaining inflationary pressure.
However, the SNB did not rule out future rate hikes, stating that further monetary policy tightening may be necessary for ensuring price stability over the medium term. This decision comes after a 25 basis point increase in June, which followed increments of up to 75 basis points previously.
Switzerland's inflation rate registered at an annual 1.6% in August, comfortably below the central bank's 2% target. This figure significantly trails the headline inflation across the euro zone, which stood at 5.3% last month.
The Swiss franc has emerged as the best performing G10 currency this year, while the Swiss economy showed signs of stagnation in the second quarter. These factors signal that this could potentially be the last hike from the SNB in this cycle.
In a statement released on Thursday, the SNB noted that the global economy's growth outlook for upcoming quarters "remains subdued," although it expects inflation to "remain elevated worldwide for the time being." Nevertheless, it anticipates a return to more moderate levels over the medium term due to a more restrictive monetary policy.
The SNB also indicated its readiness to intervene in the foreign exchange market if necessary, which currently implies selling foreign currency to strengthen the franc and curb imported inflation.
Similar to the US Federal Reserve, the SNB presented Thursday's decision as a pause, allowing it to gather new data for a clearer picture of economic and inflationary conditions before its next meeting scheduled for December 2023.
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