Do you have a surprise? – Rabobank

The SNB is widely expected to cut rates by 25 bps at its quarterly policy meeting on Thursday. The Bloomberg poll suggests all but three expect a 25bp cut, with only one predicting the Bank will opt for a move of more than 50bps. The risk of a bigger move from the SNB should not be overlooked, notes Jane Foley, currency strategist at Rabobank.

A 50bp surprise would likely weaken the CHF

“This morning the Swiss KOP Economic Institute cut its growth forecast for Switzerland to 1.1% and predicted inflation to be 1.2% in 2024 and just 0.7% in both 2025, as well as in 2026. Swiss August CPI inflation eased to 1.1% y/y, down from 1.3% y/y in July.”

“This suggests that inflation is on track to exceed the 1.5% Q3 inflation forecast that the SNB published in June. It then projected inflation to be 1.4% in 2024, assuming rates remain at 1.25%. Clearly, a strong exchange rate carries downside risks to inflation.”

“As a result, we see the SNB as a stimulus to undercut the CHF bulls with a larger-than-expected rate cut this quarter, especially since its next policy meeting is not scheduled until December. A 50bp surprise would likely weaken the CHF, although the reaction may not be sustained.”