Swiss National Bank jumps in with 50 basis point interest rate cut amid franc strength

The Swiss National Bank cut its key interest rate by 50 basis points on Thursday, beating expectations for a smaller cut amid an ongoing fight with depressed inflation and a strong Swiss franc.

The move takes the bank’s prime rate to 0.5%. More than 85% of economists respondents Reuters had forecast the bank would implement a smaller cut of 25 basis points.

Switzerland became the first major economy to loosen the reins of monetary policy in marchimplementing four reductions this year in the battle to tame the appreciation of the national currency and falling consumer prices.

“Underlying inflationary pressure has eased again this quarter. The easing of the SNB’s monetary policy today takes this development into account,” the bank said on Thursday after its first meeting under new president Martin Schlegel. “The SNB will continue to monitor the situation closely and adjust its monetary policy if necessary to ensure that inflation remains within the range consistent with price stability over the medium term.”

The bank also issued a new conditional inflation forecast below September’s, reflecting a “lower-than-expected” impression for oil products and food and predicting “little change over the medium term”.

The new outlook puts average annual inflation at 1.1% by 2024, 0.3% by 2025 and 0.8% by 2026. It assumes that the SNB’s policy rate remains at 0, 5% throughout the forecast horizon.

“Further cuts are coming, with zero interest rates in sight as soon as June. The conditional forecast of 0.3% for next year is probably too close for comfort for policymakers , especially given the recent downward revision record in every meeting this year,” said Kyle Chapman, currency markets analyst at Ballinger Group, in a note after the decision.

“At the same time, the franc is likely to come under more appreciative pressure as the ECB outpaces the SNB in ​​rate cuts and uncertainty around a Trump presidency increases haven flows,” he added.

The US dollar was up 0.4% against the Swiss franc at 9:17 a.m. London time, while the euro gained 0.57%.

Swiss inflation reached 0.7% year-on-year in November, compared to an annual print of 0.6% in October. Widely seen as a safe haven amid political turmoil in the eurozone, the franc has largely resisted giving ground despite the SNB’s rate cuts. Its recovery has been raised by the prospects for Swiss export opportunities that are already reduced by tepid demand abroad and weak sales orders.

In Octoberthe business climate index produced by industry association Swissmechanic fell to its weakest level since January 2021, with the body pointing to expectations for further declines in orders, sales and margins in the fourth quarter.

Industry association Swissmem reported in November a continued decline in Switzerland’s technology sectors. stressful: “Key indicators do not point to a recovery anytime soon. In this context, efforts must be stepped up at the political level to facilitate access to growing markets for the Swiss export economy. Specifically, free trade.”

The overall economy registered “below-average growth” of 0.2% in the third quarter, after 0.4% in the previous three-month stretch, official figures revealed. at the end of Novemberburdened by the industrial sector.

Later in the session, market attention will focus on a meeting of the European Central Bank, which is also expected to cut its rates by 25 basis points.