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Investing.com -- The Swiss National Bank (SNB) is likely to cut its policy rate by 50 basis points next week, bringing it back into negative territory for the first time since 2022, according to a new forecast from Capital Economics.
The SNB reduced its policy rate by 25 basis points to 0.25% at its last meeting, but inflation has since fallen into negative territory in May, significantly below the central bank’s March forecast of 0.3% for the second quarter. Core inflation dropped to just 0.5% in May, suggesting underlying price pressures are weaker than previously anticipated.
The Swiss franc has appreciated approximately 4% on a trade-weighted basis since the SNB’s March meeting, following what Capital Economics refers to as Trump’s "Liberation Day." According to an SNB working paper, this currency strength could reduce inflation by 0.5% annually over the next three years.
Capital Economics notes the risks are skewed toward the SNB undershooting its price stability target of 0-2% inflation. While there may be a short-term boost to demand as businesses front-run potential tariffs, particularly in the pharmaceutical sector, U.S. trade policy will likely have a negative impact on Swiss demand over the medium term.
If Switzerland secures a trade deal with the United States, it may include reduced barriers to agricultural trade, which could further weigh on inflation given the high level of Swiss food prices, according to the research firm.
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