SNB to Hold Policy Rate as Swiss Economy Surprises on Upside

The Swiss National Bank (SNB) is set to maintain its current policy rate at 0% when it meets next Thursday. Despite the economy's recent strong performance, with GDP adjusted for sporting events increasing by a particularly strong 1.5% quarter-on-quarter in the second quarter, inflation remains too low to warrant a change in monetary policy.

While the economy has delivered a positive surprise, almost half of the quarterly increase came from the volatile chemicals and pharmaceuticals sector, alongside a sharp rise in exports. A deceleration is therefore likely in the second half of the year.

The SNB's inflation target of 0-2% is comfortably within reach, with underlying inflationary pressures remaining extremely weak at just 0.3% year-on-year in August, excluding petroleum products. The strength of the Swiss franc continues to play a considerable role in keeping inflation below that of Switzerland's main trading partners.

The SNB is unlikely to revise its conditional inflation forecast significantly, despite the recent increase in energy prices and the somewhat weaker franc. Overall, there is little to suggest that the SNB needs to change its policy rate.