Interest Rate Forecasts in Switzerland for 2024-2025.

Introduction

In response to global economic challenges, including inflation stemming from the aftermath of the COVID-19 pandemic and geopolitical tensions such as the war in Ukraine, the Swiss National Bank (SNB) has adjusted its key interest rates to control inflation while supporting economic growth. This analysis details recent rate movements and future projections, based on data from Bloomberg and UBS Switzerland AG.

I. Analysis of Key Interest Rates and Inflation

In 2022, the SNB raised its key interest rate several times, reaching 1.75%, in response to a peak inflation rate of 3.5%. This measure proved effective, as inflation subsequently fell below 2%, the SNB's price stability target. In March 2024, with inflation under control and in line with expectations, the SNB lowered its key rate by 25 basis points to 1.5%. Projections suggest a continued reduction in the key rate, potentially down to 1% over the next 12 months, depending on actions by other central banks and global economic developments.

II. Long-Term Rate Forecasts

Despite the reduction in the key interest rate, yields on government bonds and mortgage interest rates have shown little significant change, indicating that markets had already integrated these adjustments. Long-term interest rate forecasts for SARON and the 3-year, 5-year, and 10-year swaps suggest moderate adjustments:

• SARON is expected to decrease from 1.25% in June 2024 to 1.00% by the end of 2024, and then slightly increase to 1.02% by the end of 2025.

• The 3-year swap rate is expected to fall from 1.10% to 0.87% by mid-2025 before rising to 0.93% by the end of the year.

• The 5-year and 10-year swap rates show similar trends with gradual decreases followed by slight increases.

Conclusion

The SNB's monetary policy remains a crucial tool for navigating the Swiss economy through current and future challenges. The rate forecasts indicate a strategy of gradual reduction, aligned with stabilized economic conditions and controlled inflation. However, investors and analysts must remain vigilant, as global economic conditions, including actions by major central banks like the Federal Reserve, could influence future SNB adjustments. In this context, long-term interest rate stability appears likely, with moderate adjustments to support a sustainable economic recovery.