The SNB was expected to cut interest rates by 25 basis points on Thursday

Investing.com — With the Swiss National Bank set to release its next monetary policy statement on Thursday, analysts at UBS expect officials to cut interest rates by 25 basis points.

In a note to clients, analysts said a more “expansionary” policy stance could be warranted “if inflationary pressures ease further and growth prospects do not improve.”

Price pressures have been below NBS forecasts so far in the third quarter, they noted. Swiss inflation came in at 1.1% last month, the slowest pace among G10 economies and near the middle of the SNB’s 0%-2% target range.

Meanwhile, business surveys indicate that broader economic activity was weak over the summer. Unemployment also continued to rise slightly from the first half of 2023.

UBS analysts also noted that the Swiss franc has appreciated against both the US dollar and the euro since the SNB’s last policy decision in June, when policymakers cut rates for the second time this year . In March, the SNB launched an unexpected cut of a quarter of a point, its first withdrawal in nine years.

The case for a cut at the third straight meeting of the SNB is subsequently “strong”, UBS analysts say. They said the risks to the forecast stem mainly from the SNB’s choice of a cut of more than 50 basis points.

“There is currently a one-in-four chance of pricing in a 50 (basis point) discount, according to future SARON prices,” the analysts said. “This reassessment of policy rate expectations has increased pressure on the SNB to cut its policy rate by 50 (basis points) at the September meeting. Failure to meet these expectations would likely result in an appreciation of the Swiss franc.”

The previous cuts put the SNB at the forefront of a recently booming trend of global central banks to cut interest rates after a period of tighter policy aimed at reducing inflation.

Last week, the Federal Reserve announced a whopping half-point rate cut, while the European Central Bank cut rates twice in three months.

Economists widely expect the SNB to cut rates to 1 percent this month before keeping borrowing costs on hold in December, according to a Reuters poll of economists.