Zurich, July 8 (BNA): The Swiss National Bank (SNB) Vice President Martin Schlegel said in an interview published Saturday that the Swiss National Bank remains open to further interest rate hikes despite falling inflation last month.
Schlegel repeated the central bank’s mantra that a rise from the current 1.75% level of the SNB cannot be ruled out when he spoke with Schweiz am Fuchenende.
Swiss inflation fell to 1.7% in June from 2.2% in May, within the bank’s 0-2% target range for the first time since early 2022, Reuters reported.
But the central bank said in its latest forecast that it expects prices to rise to 2.2% this year and next, before easing to 2.1% in 2025.
“Our task is to ensure price stability, which means that inflation should be in the range of 0-2%,” Schlegel told the newspaper.
“Despite the recent decline in inflation, underlying inflationary pressures have continued to rise,” he said. “There remains a risk of inflation becoming entrenched above 2% over the medium term, well above the range we equate with price stability.”
The market currently sees a 63% chance of a 25 basis point hike by the central bank at its next meeting in September.
Long-term demographic factors such as a shrinking working-age population point to higher interest rates in the future, Schlegel said, even after the current bout of inflation has been defeated.
“This will make labor more scarce, which could mean higher wages and higher prices which would require higher interest rates,” Schlegel said.
“Baby boomers are retiring and therefore likely to reduce their savings. Therefore, there could be less capital available which could put more pressure on inflation-adjusted interest rates.”
He said that the shift to renewable energies and the accompanying large investments may also lead to higher inflation and interest rates.
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