The Swiss National Bank (SNB) cut its key interest rate by 50 basis points on Thursday, exceeding market expectations, in an effort to tackle low inflation and a strong Swiss franc. The rate cut takes the bank’s main rate to 0.5%. The decision was made due to decreased underlying inflationary pressure, with the SNB’s easing of monetary policy aimed at ensuring inflation remains within the range consistent with price stability over the medium term.
The bank’s new conditional inflation forecast predicts average annual inflation of 1.1% for 2024, 0.3% for 2025, and 0.8% for 2026. SNB Chairman Martin Schlegel stated that the institution will continue to monitor the situation closely and adjust its monetary policy if necessary.
Schlegel attributed the policy decision to lower-than-expected inflation levels and noted that the rate cut makes negative interest rates less likely in the future. He also stressed that Switzerland can withstand a temporary period of inflation outside of the SNB’s price stability range of 0% to 2%, but the institution targets consumer price growth within that interval in the medium term.
The decision was seen as a signal that more rate cuts may be coming, with some analysts predicting that zero interest rates could be introduced as soon as June. The SNB’s willingness to cut rates further is driven by its desire to counter the attractiveness of the Swiss franc and boost inflation. The bank also left the door open for potential interventions in the foreign exchange market to rein in the currency.
The Swiss franc weakened slightly after the announcement, with the U.S. dollar rising 0.4% against the currency and the euro gaining 0.57%.