SNB May Raise Benchmark to Counter Inflation Threats, UBS Says

The Swiss central bank will probably raise borrowing costs on Sept. 16 to counter the threat of rising wages and surging property prices, UBS AG said.

The Zurich-based Swiss National Bank may increase its benchmark interest rate by 25 basis points to 0.5 percent, UBS economist Reto Huenerwadel and currency strategist Beat Siegenthaler said in an e-mailed note today. UBS is the only bank among 19 surveyed by Bloomberg News to forecast an interest-rate increase.

The Swiss economy is gathering strength, giving labor unions room to push through higher wages as borrowing costs near zero fuel property demand. Economists have argued that the SNB won’t risk hurting an export-driven recovery by raising rates and making the Swiss franc more attractive to investors.

The Swiss currency’s strength is “seen as restraining the SNB as monetary tightening would likely further boost the franc,” the UBS analysts said in the note. “We believe the SNB will put the emphasis on the risks of overheating in the domestic economy as opposed to the damping impact of a strong exchange rate on the external sector.”

The franc strengthened to parity with the dollar for the first time since December today, trading at 1.0047 at 2:29 p.m. in Zurich. It appreciated 0.8 percent versus the euro, bringing its gain to 13 percent this year.

Keeping borrowing costs on hold would have a “limited impact on the franc,” while an increase or a “hawkish statement” could push the Swiss currency toward a Sept. 8 record high of 1.2766 versus the euro, UBS said. The analysts see the franc at 1.30 over the next month and over a three-month period.

The SNB, led by Philipp Hildebrand, will publish its decision at 2 p.m. in Zurich on Sept. 16.

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