Swiss CPI growth in February exceeds expectations, Swiss National Bank may find it difficult to make its first rate cut in March?

In February, Switzerland's inflation slowed more than expected, which may dispel speculations that the Swiss National Bank will cut interest rates earlier than expected. The Swiss Federal Statistical Office reported on Monday that Switzerland's CPI rose by 1.2% year-on-year in February, slightly lower than January's 1.3% but still higher than the expected 1.1%. The so-called core CPI, excluding volatile factors such as energy and food, slowed to 1.1%. VP Bank AG's chief economist, Thomas Gitzel, pointed out that the Swiss National Bank will not take any action this year. He noted that the CPI rose by 0.6% in February compared to January, three times higher than the previous month and higher than the expected 0.5% increase. In a report to investors, he wrote, "Price momentum increased significantly in February. This is why the Swiss National Bank will be cautious in cutting interest rates." Unlike other major central banks, the Swiss National Bank holds meetings only once per quarter, so this month's meeting is the first of the year. Swiss National Bank President Thomas Jordan may see this data as evidence, as he unexpectedly praised the central bank's ability to achieve price stability when announcing his resignation decision later this year. Gitzel stated, "Before stepping down in September, Jordan will want to ensure that all inflation risks are alleviated. He can leave monetary policy easing to his successor. We do not expect a rate cut this year." In addition to easing price pressures, the strong Swiss franc has also protected the Swiss economy, preventing higher inflation from external sources. The Swiss franc to euro exchange rate has fallen since reaching a historic high at the beginning of the year, a fact acknowledged by the Swiss National Bank. Meanwhile, with expectations of a Federal Reserve rate cut cooling, the Swiss franc has also been falling against the US dollar this year. UBS analyst Alessandro Bee stated that the Swiss National Bank may still be cautious in deciding whether to cut interest rates. He said, "Inflation risks have significantly decreased, but given the 'stickiness' of second-round effects, I do not think the Swiss National Bank believes inflation risks have completely dissipated." However, Swiss inflation has now returned to within the central bank's target range. As inflation falls, more people speculate that the Swiss National Bank may accelerate its timetable for monetary policy easing. While most economists expect the Swiss National Bank to wait until September for the first rate cut, more analysts now predict that the Swiss National Bank will take action in June or even at the next policy decision on March 21st. The market currently sees a 66% likelihood of the Swiss National Bank lowering rates from the current level of 1.75% in March. Despite being higher than expected, Switzerland's inflation rate in February fell to the lowest level in nearly two and a half years, the lowest since October 2021, well within the Swiss National Bank's target range of 0% to 2% price growth. Since May 2023, despite increases in rents, sales taxes, and energy prices, the Swiss National Bank has still achieved this target. EFG Bank economist GianLuigi Mandruzzato stated that the rate cut supports the possibility of the Swiss National Bank lowering rates at the meeting on March 21st. Mandruzzato said, "Further decline... indicates that the Swiss National Bank's pursuit of price stability is being reestablished."