By Indradip Ghosh

BENGALURU (Reuters) – The Swiss National Bank (SNB) is expected to cut its key policy rate by 25 basis points on December 12, according to over 85% of economists polled by Reuters. Many expect the rate to reach near-zero by 2025, which is lower than previous forecasts.

Financial market pricing suggests a potential increase in the reduction to 50 basis points due to weak Swiss inflation and the SNB's preference to prevent a stronger Swiss franc, which has risen around 2% against the euro since the last policy meeting.

Switzerland boasts the lowest inflation rate among major economies. However, given moderate economic growth and an already low borrowing cost of 1.0%, the room for further significant cuts is limited.

In the December 5-9 Reuters poll, 27 of 31 economists predicted a reduction to 0.75% on December 12, just ahead of the European Central Bank's expected cut of the same amount. Only four economists anticipate a 50-bps cut.

Christian Schulz, deputy chief European economist at Citi, mentioned that while a 25-bps cut may surprise the market, larger cuts seem unnecessary due to the resilient economy and stable exchange rate. He anticipates that the SNB will again lower its short-term forecasts while maintaining a dovish stance.

Low Inflation

Swiss inflation reached 0.7% in November, far below the SNB's target range of 0-2% and the lowest among G10 economies. Future forecasts suggest an average of 0.7% in 2025 and 1.0% in 2026.

The SNB raised rates modestly post-pandemic, only reaching 1.75% from negative rates, and has already reduced rates by 75 bps since March.

Over half of the economists (15 of 28) predict rates could drop to 0.25% or zero next year, compared to a September poll where no economist suggested rates would go below 0.50% next year.

Currently, Switzerland holds the second-lowest interest rate among major economies, trailing only Japan, which raised its rates this year to 0.25%.

Unlike Japan, the Swiss central bank faces a strong currency that keeps inflation low.

A separate Reuters poll indicated that the Swiss franc may weaken but will likely retain some of its recent gains in the coming year, amid expectations that the European Central Bank will cut rates by at least 100 bps in 2025, more than the SNB, to support the eurozone economy against anticipated U.S. tariffs next year.

Karsten Junius, chief economist at J. Safra Sarasin, noted sluggish growth in the euro area could negatively affect Swiss exports there, which comprise a significant portion of its trade.

"We expect a further decline in inflation in the coming months, indicating that the risks to price stability lean to the downside," stated Junius, who anticipates a 50-bps cut on Thursday.

(Other stories from the Reuters global economic poll)