Swiss Inflation Update

ZURICH (Reuters) – Swiss inflation rose less than expected in November, official data showed on Tuesday, boosting bets for a bigger interest rate cut by the Swiss National Bank next week.

Swiss annual inflation advanced to 0.7% in November from 0.6% the previous month, according to figures from the Federal Statistics Office. The consensus forecast of a Reuters poll had predicted 0.8%.

Compared with the previous month, consumer prices declined by 0.1%, in line with the Reuters forecast.

The SNB, which targets an inflation rate between 0% and 2%, has in 2024 reduced its benchmark rate by 25 basis points three times, leaving it at 1% now.

Markets currently give a 71% probability for a 50 basis point cut, and a 29% likelihood for a 25 basis point reduction at the SNB's next monetary policy meeting on Dec. 12. Previously, the market had leaned toward a 25 basis point cut.

Karsten Junius, chief economist at J. Safra Sarasin, said risks to price stability are now on the lower side, forecasting a 50 basis point rate cut in December, up from a previous prediction of 25 basis points.

Two further 25 basis point rate cuts in March and June 2025 could follow, potentially bringing the SNB benchmark rate to 0%. After that, negative interest rates could not be ruled out, though it presents a high hurdle.

The SNB has left the door open to negative rates. The central bank could use foreign exchange interventions to adjust the value of the Swiss franc and prevent imported deflation. However, Junius noted that, currently, there is no clear and sizable overvaluation of the franc.