Switzerland’s central bank is unlikely to raise interest rates until 2020 as inflation is set to remain weak as exchange rate effects unwind, Stephen Brown, an economist at Capital Economics, said.
Headline inflation slowed to 0.7 percent in January from 0.8 percent in December, official data showed on February 12.
The slowdown in inflation was mainly due to a drop in core inflation, which fell from December’s 0.7 percent to a 3-month low of 0.5 percent.
The economist noted that weaker core inflation was largely caused by a fall in imported inflation.
Looking ahead, imported inflation is likely to remain around this level until the summer, but as 2019 comes into view, it is likely to drop back sharply, Brown added.
Capital Economics also observed that the recent rise in domestic inflation is unlikely to prevent the coming slowdown in imported inflation.
Based on the above facts, the economist expects Swiss headline inflation to remain below 1 percent over the next couple of years.
“The SNB [Swiss National Bank] is likely to keep the threat of currency intervention alive and reiterate that interest rates will remain very low,” Brown said.
“We do not expect it to raise interest rates until 2020,” the economist concluded.