Economists split on Swiss rate hike

The Swiss National Bank (SNB) will raise rates on Thursday. However, economists are divided on how aggressively officials will act to tame inflation.

Most expect a hike of 0.5% to 1%, but the Bloomberg survey points to a possibility of both larger and smaller steps. 

While inflation at 3% does not require an overreaction, the Bank of Switzerland needs to avoid wide gaps between its rate and those of banks in other countries, UBS economists say.

Specialists say that if the bank's decision is too dovish, markets may conclude that the SNB is not ready to take big steps and start speculating against the franc.

Maxime Botteron, an economist at Credit Suisse, said the SNB would raise rates by 0.25%.

He also noted that inflation fell below the SNB forecast. The expert added that wage increases had already been seen earlier this year. However, domestic inflation has never exceeded 2% and the main drivers of price growth are still abroad.

According to Patrick Haefeli, an economist at St. Galler Kantonalbank, SNB should send a signal that inflation is too high. Particularly in view of the strong Swiss labor market, it is important to prevent price and wage spirals. The economist predicts a second consecutive rate increase of 0.75%.