The Swiss National Bank will likely conclude its unprecedented campaign of interest-rate hikes with a quarter-point step on Thursday, a move that risks putting an end to the franc’s peer-beating rally.

All but four of 31 economists in a Bloomberg survey expect the key rate to be lifted to 2%, with the remainder forecasting a pause. In anticipation, investors have ramped up bets against the franc, almost doubling their short position against the dollar.

The franc has outperformed all its Group-of-10 peers this year on the back of the SNB’s action, reaching a eight-year high against the euro in July. Now, analysts say further monetary tightening won’t be necessary given growth is faltering and inflation — unlike in other jurisdictions — has already returned to target.

“Investors have grown skeptical on the franc rallies, and so have we,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch. “We are concerned the SNB is overtightening.”

With a quarter-point move, Swiss policymakers would mirror last week’s increase by the European Central Bank, narrowing the spread between the two rates to 250 basis points. But given how much slower inflation is in Switzerland, the central bank’s stance has had an outsized impact.

Investors increased their short position on the franc versus the dollar in futures and options’ markets by almost 80% in the week ended on Sept. 12, according to data from the Commodity Futures Trading Commission.

The franc traded at 0.96 per euro on Wednesday, having strengthened from a parity in January. It’s up more than 3% since the start of the year.

Not all economists are convinced an increase in borrowing costs is really necessary.

“The SNB doesn’t have to prove anything to anyone,” said Karsten Junius, chief economist at Bank J Safra Sarasin Ltd, who’s predicting a “hawkish pause.”

A hike this week would put “unnecessary stress” on the economy, he said. “Instead, halting and hinting at the possibility of another move down the road would keep the debate from turning solely to cuts.”

Inflation has been within the SNB’s 0%-2% target range for the last three months. The key judgment question for officials will now be how much it will accelerate down the road. The costs for rents, electricity and public transport are set to rise and the government is also increasing value-added tax. These measures already pushed the central bank to forecast price growth at 2% or higher from the final quarter of this year.

On top of this, unions are now demanding a 5% increase of salaries as they head into talks with employers. Their key motivator is that real wages in Switzerland have fallen two years in a row, translating into the biggest decline since 1942.

For UBS economist Alessandro Bee these combined factors don’t just point to a quarter-point hike on Thursday, but also make him expect hawkish language that keeps the possibility of yet another increase on the table.

“Inflation risks have rather grown since the summer,” he said. “We see a significant cooling of growth, but we expect price risks to still take center stage at this meeting.”

The government on Wednesday trimmed its forecast for price gains in 2023 to 2.2%. For 2024, it sees consumer prices rising by 1.9%.

Amid speculation over whether the franc may have become too strong even for SNB’s inflation-fighting taste, investors will also watch closely for any hints on the central bank’s foreign-exchange sales. It sold more than 60 billion francs ($67 billion) of international reserves to boost the local currency and reduce its balance sheet between the second quarter of 2022 and first quarter of 2023.

“The SNB’s FX policy language should still emphasize the selling of foreign currency to ensure a strong franc given the coast is not clear on inflation,” Paul Mackel, global head of FX research at HSBC wrote in a note.

Other things to keep an eye on:

• The money-markets department has a new interim lead: Board deputy Thomas Moser will likely make his first appearance at a rate decision, as no successor to Andrea Maechler — who exited in June — has been appointed yet.
• The SNB currently predicts 2023 growth of about 1%. Given the economy stalled in the second quarter, Switzerland’s government now expects only 0.8%. Adjusted for the effect of large sport events like the Olympics, whose output counts toward Switzerland as the International Olympic Committee is based there, the government expects 1.3%.

(Updates with government forecasts in 15th paragraph.)