Swiss National Bank Executes Major Interest Rate Cut

The Swiss National Bank (SNB) executed its largest interest rate cut in nearly a decade on Thursday, reducing its policy rate by 50 basis points from 1.0% to 0.5%. This decision aims to counter anticipated cuts by other central banks and manage the appreciation of the Swiss franc.

Economic Forecast

The move surprised many, with over 85% of economists previously predicting a modest 25 basis point reduction. This is the steepest decline since the SNB’s emergency cut in January 2015, which ended its minimum exchange rate with the euro.

Inflation and Policy Considerations

The SNB noted that "underlying inflationary pressure has decreased again this quarter." Their easing of monetary policy reflects this situation. The bank promised to "continue to monitor the situation closely," ready to adjust its policies to uphold inflation within its desired range for price stability in the medium term.

This adjustment is the first under new SNB Chairman Martin Schlegel, marking a shift from the previous chairman Thomas Jordan's approach, who implemented three 25 basis point reductions earlier this year.

Context of Inflation

Swiss inflation was recorded at 0.7% in November, consistently remaining within the SNB's target range of 0-2% since May 2023. This cut coincides with anticipated reductions from other central banks, including the European Central Bank and the U.S. Federal Reserve, both expected to lower rates soon. Additionally, the Bank of Canada reduced its main policy rate by 50 basis points on Wednesday, indicating a trend of easing monetary policy across multiple economies.