Swiss inflation strengthens case for central bank rate cut

FILE PHOTO: The Swiss National Bank (SNB) building is seen near the Limmat river in Zurich, Switzerland March 23, 2023. REUTERS/Denis Balibouse/File Photo

By John Revill

ZURICH (Reuters) – Swiss inflation fell in February to its lowest level in nearly two and half years, government data showed on Monday, fuelling expectations that the Swiss National Bank could cut interest rates later this month.

Consumer prices rose by 1.2% compared with a year earlier, a deceleration from the 1.3% rate in January albeit a slightly higher rate than the 1.1% forecast in a Reuters poll.

The figure was the lowest reading for Swiss inflation since October 2021 and was well within the SNB’s target range, which aims for price increases between 0% and 2%.

The SNB has achieved its goal since May 2023 despite rising rents, higher sales tax and energy prices.

Core inflation, which strips out the impact of fresh and seasonal products, as well as energy and fuel was even lower at 1.1% in February.

The reduction supports the possibility the SNB will cut rates at its next meeting on March 21, said GianLuigi Mandruzzato, an economist at EFG Bank.

“The further decrease …shows that price stability, as pursued by the SNB, is re-established,” he said.

Markets currently have priced in a 66% probability that the SNB will cut rates from the current level of 1.75%.

Still, the SNB could remain cautious when deciding whether to cut, said UBS economist Alessandro Bee.

“Inflation risks have decreased significantly but given the ‘sticky nature’ of second-round effects I don’t think that the SNB already sees inflation risks as completely faded,” he said.

(Reporting by John Revill; Editing by Noele Illien and Toby Chopra)