| Ramzi Chamat
After significant and rapid increases in interest rates by national central banks in recent months and quarters, inflationary pressure has decreased but still remains above the target of 2%. However, these rapid increases in interest rates have led to some adverse effects in the banking system, such as the insolvency of several US banks, including Silicon Valley Bank (SVB) and Signature Bank. Additionally, the conflict over the US debt ceiling has kept the markets on edge in recent days.
Central banks are therefore faced with a difficult decision before the next interest rate decision in June. Will they continue to pursue their goal of fighting inflation and raise the benchmark interest rate once again, or will they signal a pause or even a reversal?
The inflation rate in the United States has seen a slight decrease and stood at 4.9% in April, reaching its lowest level since April 2021. This figure is also lower than the market's expectations of 5% inflation. Despite this decrease, the current assessment by the Federal Reserve (Fed) indicates that inflation remains high and economic data is stronger than expected, which does not allow for a quick change in monetary policy and interest rates. The Fed's most recent increase in interest rates was on May 3rd, raising them by 0.25 percentage points to 5.25%. Thus, the Fed continues to combat inflation.
On the other hand, the European Central Bank (ECB) also raised its benchmark interest rate in early May by 0.25 percentage points, bringing it to 3.75%. While the inflation rate in the Eurozone remains high, it has significantly decreased in April to 6.4% compared to 6.9% in March. Unlike Switzerland or the United States, the ECB believes that it will be necessary to further increase interest rates significantly and at the usual pace in order to bring the inflation rate back within the target range of 2% as quickly as possible.
In Switzerland, the inflation rate recorded a decrease in April, settling at 2.6% compared to 2.9% the previous month. This is the lowest level since April 2022. This development is attributed to the strength of the Swiss franc, protectionist measures, and moderate wage increases, which help maintain inflation at a relatively low level compared to other countries worldwide. However, despite this decrease, inflationary pressure persists in Switzerland.
Many indicators increasingly suggest a future easing of prices. In this context, many analysts expect that the Swiss National Bank (SNB) will only slightly increase its benchmark interest rate in June. The external value of the Swiss franc and the price of electricity will play a decisive role in determining whether inflation in Switzerland will fall below the 2% threshold in the coming months.
