The Swiss National Bank (SNB) has taken its third step this year to loosen monetary policy, reducing its key interest rate by 25 basis points to 1.0%. This anticipated move, forecasted by 30 of 32 analysts in a Reuters poll, further positions the SNB as the first major Western central bank to initiate rate cuts this March. This latest rate cut occurs amidst similar actions from the European Central Bank and the U.S. Federal Reserve, which last week implemented a 50-basis-point reduction.
Domestically, Swiss inflation remains controlled, with a 1.1% annual increase reported in August. Following the rate cut, the Swiss franc strengthened against major currencies, with the U.S. dollar and euro down nearly 0.14% and 0.16%, respectively. This rise has led to concerns among Swiss exporters like Swissmem, who fear that continued currency strength could hinder recovery prospects. “This renewed exacerbation has come at a sensitive time for key export industries, potentially extinguishing recovery hopes,” Swissmem stated.
The SNB attributed the rate cut to the appreciation of the Swiss franc and its impact on reducing inflationary pressure. “Inflationary pressure in Switzerland has decreased significantly. Today’s policy easing reflects this appreciation,” the SNB noted, hinting at possible further cuts to maintain price stability.
Kyle Chapman, an FX markets analyst at Ballinger Group, criticized the SNB’s consistent underestimation of inflation forecasts, despite conditioning them on lower rates. “The 0.6% forecast for 2025 might be too close for comfort for a central bank keen to return to deflation,” Chapman said. He anticipates at least two more rate cuts in the coming months, predicting a swift move towards zero rates without stronger intervention from the SNB.
As global and domestic economic conditions evolve, the SNB remains vigilant, adjusting monetary policy to navigate inflationary pressures and currency dynamics.
Original Story https://www.cnbc.com/2024/09/26/swiss-central-bank-cuts-rates-by-a-quarter-point.html
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