The Swiss National Bank (SNB) headquarters before a press conference in Zurich, Switzerland on March 21, 2024.
Dennis Baribouz | Reuters
The Swiss National Bank eased monetary policy for the third time this year on Thursday, cutting its key interest rate by 25 basis points to 1.0%.
The cut had been predicted by 30 of 32 analysts surveyed by Reuters and would have been the SNB's third rate cut in 2024.
The bank became the first major Western central bank to cut interest rates in March.
The third rate cut comes as the European Central Bank and the US Federal Reserve tapered interest rates, delivering a long-awaited 50 basis point cut last week. Domestically, inflation in Switzerland remains subdued, with the latest headline forecast being an annual rise of 1.1%. August.
The Swiss franc strengthened against major currencies following the latest interest rate decision. The US dollar and euro weakened 0.14% and 0.16% respectively against the Swiss franc, in line with expectations from ING analysts. Expectations This rate cut will lead to “outperformance” of the Swiss currency.
Following the Swiss currency's appreciation in August, one of the country's largest associations, Swissmem, an association of technology manufacturers, called on the SNB to “act urgently in line with its mandate” and ease the squeeze on local companies.
“This new downturn comes at a delicate time for one of our key export industries, which have been seeing signs of a gradual recovery after more than a year of difficulties. Those hopes could fade if upward pressures are not contained.” Swissmem said at that time.
The Swiss National Bank acknowledged the overall trend of the local currency strengthening as the main reason for Thursday's rate cut.
“Inflation pressures in Switzerland have again weakened significantly compared to the previous quarter. This decline reflects, among other things, the appreciation of the Swiss franc over the past three months,” it said in a statement.
“The SNB's easing of monetary policy today takes into account the easing of inflationary pressures. To ensure price stability in the medium term, it may be necessary to lower the SNB's policy rate further in the coming quarters,” it added.
“The SNB has consistently lagged behind on its inflation forecasts, even with each rate cut conditional this year. Its forecast of 0.6% for 2025 may be a bit too close for a central bank eager to return to deflation,” said Kyle Chapman, currency markets analyst at Ballinger Group.
“We expect at least two 25 basis point hikes in December and March, mainly because we don't see any short-term catalysts for the franc to weaken until the SNB becomes more interventionist. Unless the SNB gets more interventionist, the franc won't weaken anytime soon,” Chapman added.
