By Indradip Ghosh
BENGALURU (Reuters) - The Swiss National Bank will hike its policy rate by a smaller 50 basis points on Thursday, as is also expected by the European Central Bank, according a majority of economists in a Reuters poll, with a significant minority expecting an even bigger move.
With inflation running well above the SNB's 2% target and a widening interest rate differential with the ECB putting pressure on the already-weakening Swiss franc, the chance of another 75 basis point move cannot be ruled out.
Despite inflation easing from a near 30-year peak of 3.5% in the last few months, SNB Chairman Thomas Jordan recently said there was a "high probability" more monetary policy tightening was needed as inflation was likely to remain elevated.
Inflation was not expected to fall below 2% until 2024, the Dec. 7-12 Reuters poll also showed.
After the central bank raised its key policy rate by 75 basis points in September, lifting it out of negative territory for the first time since 2014, 18 of 28 economists expected it to go for a softer half percentage-point hike to 1.00% this time, in line with market expectations.
The ECB, which has already added 200 basis points to its key interest rates compared with only 125 basis points by the SNB, was widely expected to go for an identical 50 basis-point move a few hours later.
The U.S. Federal Reserve was also expected to hike its key interest rates by an equivalent amount one day earlier.
"In our view, the SNB will not know the outcome of the ECB meeting beforehand and may not want to risk the rate differential becoming too wide, also given that the ECB could surprise with a larger hike," said Felix Huefner, senior European economist at UBS, who expected a 50 basis point move this week.
"Also, if in doubt, we think the SNB would rather opt for the more hawkish choice."
Indeed, nine economists predicted the central bank would hike its policy rate by 75 basis points, with only one expecting a 25 basis-point move.
The Swiss economy, which grew only 0.5% annually last quarter, was expected to weaken significantly next year like most of its peers. It was forecast to grow just 0.6% in 2023, less than half of this year's 2.0%.
"The...slowing economy, falling energy prices but also the shift in emphasis to balance sheet reduction speak against big rate hikes," said Christian Schulz, economist at Citi.
"However, interest rate differentials are already historically wide and with fewer meetings available, the SNB has to make bigger steps to keep up. That is why we stick with our call for a 75bp rate hike to 1.25%."
In March the Bank is forecast to add another 50 basis points, the poll median showed, taking it to a peak of 1.50%, 125 basis points lower than the expected terminal ECB deposit rate and meaning more potential weakness for the franc.
Since the SNB's last meeting in September the franc has lost over 3% against the euro and will decline another 1.5% over the coming months, a separate Reuters survey showed.
The central bank has recently departed from a campaign it waged for years to rein in the safe-haven currency, whose strength has restrained its export-reliant economy, and actively intervened in markets over the past few months to prop up the franc.
(For other stories from the Reuters global economic poll)