Switzerland's inflation data for October came in below market expectations, prompting investors to sharply raise their expectations for future rate cuts by the Swiss National Bank. The latest data from the Swiss Federal Statistical Office show that the Swiss Consumer Price Index (CPI) fell by 0.1% month-on-month, with the year-on-year growth rate dropping to 0.6%, falling short of the Swiss National Bank's 1.0% inflation target for the fourth quarter. The core inflation rate in Switzerland also dropped by 0.2 percentage points to 0.8%, particularly as inflation in private services excluding rent continued to decline, indicating weak domestic demand. As a result, the Swiss franc weakened against all G10 currencies, and the market is full of anticipation that the Swiss National Bank might adopt more aggressive easing policies.
The Swiss National Bank may face unprecedented pressure to cut rates at its meeting on December 12. Analysts noted that the decline in Switzerland's inflation rate in October was mainly due to falling fuel prices, driven by a drop in global oil prices, reflecting a broader global economic slowdown that has impacted Switzerland's external demand. Particularly, the recent weak performance of European economies, with the EU's low growth, has directly affected Switzerland's demand as an export-oriented economy, further exacerbating the risk of deflation in Switzerland.
In addition, Switzerland's macroeconomic outlook has also been affected by the economic slowdown of major global economies. The continued global economic slump has weakened import and export demand across countries, placing greater pressure on the Swiss franc, considered a safe-haven currency, to appreciate. To prevent further appreciation of the Swiss franc, which could hurt the export sector, the Swiss National Bank may need to act at its December meeting, possibly through rate cuts or even considering negative interest rates to boost market confidence.
Currently, the Swiss National Bank's benchmark interest rate is nominally at 1.0%, but there is relatively limited room to lower it further into negative territory. Nonetheless, the threat of deflation forces the Swiss National Bank to adopt more robust monetary policy measures to hedge risks. Experts predict that if a rate cut is announced at the December meeting, it could be as much as 50 basis points, representing a decisive move to counter deflationary risks.
Facing a sluggish global macroeconomic environment and a continued decline in domestic inflation, the Swiss National Bank's December meeting will become the focal point of market attention. Investors will closely watch the Swiss National Bank's latest assessment of the current economic and inflation situation and anticipate whether it will take more aggressive measures to stabilize the economic outlook.
