Michael Pfister of Commerzbank argues that subdued imported inflation and low exchange rate pass-through give the Swiss National Bank (SNB) little reason to tighten policy. Despite a recent uptick in prices, he expects inflation to rise only slightly, if at all, and reiterates a forecast that SNB interest rates will remain unchanged until the end of 2027, supporting a persistent rate differential versus the Euro area.

Low pass-through underpins steady SNB stance

"Although inflation has increased again in Switzerland in recent months, the rise has been smaller than expected. Our analysis suggests one possible reason for this: the exchange rate effect is smaller than is often assumed."

"We therefore stand by our forecast that inflation is likely to increase only slightly, if at all."

"Relatively subdued inflationary pressure is one of the main reasons for our long-standing forecast that the SNB will leave interest rates unchanged until the end of 2027."

"As our model suggests that imported inflationary pressure is moderate, the interest rate differential between the euro area and Switzerland is likely to persist for some time."

"EUR/CHF should benefit from this in the medium term."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)