Swiss National Bank Cuts Interest Rates
By John Revill
ZURICH (Reuters) – The Swiss National Bank (SNB) reduced interest rates by 25 basis points on Thursday, following similar actions by the European Central Bank and the U.S. Federal Reserve, amid sharply cooling inflation.
The SNB’s policy rate is now set at 1.00%, marking the lowest level since early 2023, as anticipated by analysts in a Reuters poll. This adjustment represents the third rate cut this year, indicating a retreat from previously implemented measures to combat inflation.
This decision, coinciding with SNB Chairman Thomas Jordan’s tenure conclusion, was facilitated by easing price rises in Switzerland, which have slowed to 1.1% in August and remained within the central bank’s target range (0-2%) for the past 15 months.
Following the decision, Jordan expressed readiness for further rate cuts, citing a significant decrease in inflationary pressure in Switzerland. “Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term,” he stated at his press conference.
His successor, Martin Schlegel, indicated the likelihood of additional rate cuts, though he refrained from providing guarantees. “It’s important to know that we don’t give forward guidance and we never pre-commit,” he remarked, despite noting the current monetary conditions suggest that a rate cut could occur as soon as December.
The SNB’s proactive inflation management has positioned it to lead among central banks in reducing borrowing costs, with earlier cuts occurring in March and June.
Schlegel revealed that weakened inflationary pressures allowed the SNB to revise its inflation forecasts downward significantly. He noted the Swiss franc’s recent appreciation as a factor contributing to low inflation, while also recognizing its challenges for Swiss exporters facing reduced demand from abroad.
The Swiss franc has strengthened recently, reaching its highest value against the euro in nine years in early August. The trajectory of the franc continued upward post the rate cut announcement.
Charlotte de Montpellier, senior economist at ING, described the SNB’s 25 basis point cut as “the most dovish you could ask for.” She emphasized that the SNB made it clear that further reductions could be necessary and that the inflation forecasts were revised more drastically than anticipated.
Outlook for Future Cuts
Karsten Junius, chief economist at J Safra Sarasin, considered the bank’s outlook more dovish than market expectations. He stated, “This is the strongest hint towards future policy decisions that the SNB has given in the past years and a break from previous communication patterns.”
The SNB adjusted its inflation forecast for 2024 to 1.2% from a previous 1.3%, while forecasts for 2025 and 2026 were trimmed to 0.6% from 1.1% and to 0.7% from 1.0%, respectively. The indicators suggest the SNB aims to signal that further rate cuts are forthcoming, with the intent of weakening the Swiss franc.
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