Credit Suisse has raised its forecast for Switzerland's benchmark interest rate, with the scope for a rate cut anytime soon seen as remote. Inflation expectations are also higher.

In their latest macroeconomic analysis, economists at Credit Suisse raised their interest rate forecast for Switzerland, with two more hikes expected. They now see the SNB raising its benchmark Saron rate from the current 1.0 percent to 1.5 percent in March, followed by a more modest hike to 1.75 percent in June. Previously, the peak was seen at 1.25 percent.

The higher interest rate level will be maintained in Switzerland longer than previously forecast, and no reversal is expected until the end of 2024. Unlike other major central banks, the SNB won't have the same flexibility to lower interest rates.

Higher Inflation Expectations

The Credit Suisse economists also adjusted their inflation expectations, now forecasting prices to rise by 1.7 percent over this year, instead of 1.5 percent. They cite higher electricity prices, which are likely to have a driving effect in January for which they forecast a 3.2 percent increase compared with a 2.8 percent rise in December.

Inflation will fall below 2 percent in the second quarter on lower oil and gas prices. Moreover, supply chains returning to normal, and price pressure for goods is easing. Additionally, there have been few signs of second-round effects from rising wages. In the fall, they expect inflationary pressure to again take hold due to rising rents as a result of the expected increase in the reference interest rate.

Eurozone and US Rates

Over the past week, various central bankers from the US and the eurozone also commented on interest rates. Klaas Knot, President of the Dutch central bank «De Nederlandsche Bank» and member of the ECB Governing Council, expects interest rates in the eurozone to rise from the current level of 2.5 percent by 0.5 percentage points in both February and March. Subsequent increases are to be expected, he said.

According to a «Reuters» poll, the majority of economists expect ECB interest rates to peak at 3.25 percent.

In the US, a 25 basis point rate hike is expected next week, a slowdown in the pace after previous hikes of 50 and 75 basis points. Moderating inflation and an easing labor market provide scope for a slowdown. US rates are likely to peak at 5.0 percent, the market expects.

The SNB will announce on March 23 it's monetary policy decision after which it will hold a press conference.