A view of the headquarters of the Swiss National Bank (SNB) before a press conference in Zurich, Switzerland, March 21, 2024.
Denis Balibouse | Reuters
The Swiss National Bank cut its key interest rate by 25 basis points to 1.25% on Thursday, continuing cuts as sentiment in major economies remains mixed regarding monetary easing.
Two-thirds of economists polled by Reuters had expected the SNB to opt for a 25 basis point cut to 1.25%.
The Swiss franc weakened in the wake of the announcement Euro gains 0.3% and that US dollar rises 0.5% against the Swiss currency at 8:55 a.m. London time.
Following Thursday’s decision, the Swiss central bank set its conditional inflation forecast at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026. The figures assume an SNB interest rate of 1.25% in the forecast period.
After rising in April, the country’s inflation stagnated at 1.4% in May and is expected to remain at the same level on average throughout 2024, according to the SNB’s latest forecasts.
The Swiss bank said it now expects economic growth of about 1% this year and about 1.5% in 2025, and expects a slight increase in unemployment and a slight decline in the utilization of production capacity.
“In the medium term, economic activity should gradually improve, supported by slightly stronger demand from abroad,” the SNB said.
In a June 14 note, Nomura analysts called a likely cut a “balanced decision” and signaled that “underlying inflation dynamics have remained weak, which should increase the SNB’s confidence that inflation will converge to the mean. “Inflation target.”
After Japan, Switzerland already has the second lowest interest rate of the Group of Ten democracies by a wide margin. It became the first major economy to cut interest rates back in late March, and the European Central Bank followed suit earlier this month, and questions are now growing as to whether it will go ahead with a third rate cut this year.
The SNB’s inflation forecast “suggests that there will be some more restrictive measures this year and to me that is a strong signal that another rate cut is on the way in September,” said Kyle Chapman, foreign exchange market analyst at Ballinger Group. “I expect the SNB to make a third rate cut next quarter and there is a possibility of a fourth rate cut in December if there remains strong conviction about restrictive monetary policy.”
He signaled that this outlook puts the Swiss franc in a “vulnerable position.”
But the US Federal Reserve hasn’t batted an eyelid yet, and market participants will follow later in Thursday’s meeting to see whether the Bank of England makes the move to cut interest rates after British inflation fell for the first time in almost three has fallen to the 2% target in years.
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2024-06-20 08:06:59
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