The SNB is widely expected to cut rates by 25 bps at Thursday’s quarterly policy meeting.  The Bloomberg survey suggests that all but three forecasters expect a 25 bp cut, with only one predicting that the Bank will opt for a larger 50 bps move. The risk of the larger move from the SNB should not be overlooked, Rabobank’s FX strategist Jane Foley notes.

A 50 bp surprise would likely weaken the CHF

“This morning the Swiss KOP Economic Institute lowered its growth forecasts for Switzerland to 1.1% and predicted that inflation would be 1.2% in 2024 and just 0.7% in both 2025 and 2026. Swiss August CPI inflation registered a softer than expected 1.1% y/y, down from 1.3% y/y in July.”

“This suggests that inflation is on course to undershoot the 1.5% Q3 inflation forecast that the SNB published in June. It then forecast that inflation would be a 1.4% in 2024, assuming rates stayed at 1.25%. Clearly a strong exchange rate brings downside risks to inflation.”

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