A view of the headquarters of the Swiss National Bank (SNB), before a press conference in Zurich, Switzerland, March 21, 2024.
Dennis Balibouse | Reuters
The Swiss National Bank on Thursday took its third step in easing monetary policy this year, cutting its key interest rate by 25 basis points to 1.0%.
The cut, expected by 30 out of 32 analysts polled by Reuters, would be the Swiss National Bank's third rate cut in 2024.
The Fed was the first major Western central bank to cut interest rates in March.
The third cut comes amid similar signals from the European Central Bank and the US Federal Reserve, which took the long-awaited step of easing interest rates by cutting them by 50 basis points last week. Domestically, Swiss inflation remains muted, with the latest headline data pointing to an annual increase of 1.1% in August.
The Swiss franc rose against major currencies on the back of the latest interest rate decision. The US dollar and the euro fell by around 0.14% and 0.16% against the Swiss franc respectively – in line with ING analysts’ expectations that the rate cut will lead to “outperformance” of the Swiss franc.
The strengthening of the Swiss currency in August prompted one of the country's largest associations, the Swiss Mem technology manufacturers group, to call on the Swiss National Bank to “act quickly, in line with its mandate” and ease the pressures on domestic companies.
“This renewed deterioration came at a sensitive time for one of the main export industries: after a difficult period lasting more than a year, a slow recovery was on the horizon. If upward pressures are not contained, these hopes will be dashed,” Swiss Meem said at the time.
The Swiss National Bank acknowledged the broader trend of its currency's appreciation as a major factor contributing to the currency's devaluation on Thursday.
“Inflationary pressures in Switzerland have again eased significantly compared to the previous quarter. This decline reflects, among other things, the appreciation of the Swiss franc over the past three months,” the office said in a statement.
The Swiss National Bank added that today's monetary policy easing takes into account the decline in inflationary pressures. Further interest rate cuts by the Swiss National Bank may become necessary in the coming quarters to ensure price stability in the medium term.
“The SNB has been consistently behind the curve in its inflation forecasts this year, even as it has been conditioned to cut interest rates every time. A 0.6% forecast for 2025 is likely too soon for a central bank keen to return to deflation,” said Kyle Chapman, FX analyst at Ballinger Group.
“I expect two more 25bp moves in December and March at the very least, primarily because I don’t see any near-term sources of franc depreciation without a stronger intervention stance from the SNB. We are heading towards zero relatively quickly,” Chapman added.
Swiss National Bank President Thomas Jordan, who is leaving the central bank at the end of this month, played down the risks on Thursday.
“If we look at our inflation outlook, it's still within the price stability range, so I don't see any risk of deflation anytime soon,” Jordan told reporters, according to Reuters. He added that the central bank may still have to cut interest rates again to keep inflation within its zero to two percent target range.
Adrian Pretjean, Europe economist at Capital Economics, said the SNB's statement suggested that central bank policymakers had likely not used foreign exchange interventions “to any great extent” – but that they could soon resort to such measures.
“We believe the SNB will start considering using FX interventions more aggressively once interest rates fall to around 0.5%,” Breitjon said in a note. “At that point, a more balanced decision will be made on whether to rely on FX intervention rather than further rate cuts to provide further support to monetary policy.”
