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The Swiss National Bank (SNB) has announced a 50 basis point cut in its interest rate, the biggest reduction in almost 10 years. This move comes in response to weaker than expected inflation in Switzerland and growing uncertainty about the global economy.
The central bank cited tepid price increases, rising risks around future U.S. economic policy, and political hazards in Europe as reasons for the rate cut. The policy rate has been reduced from 1.0% to 0.5%, the lowest level since November 2022.
While the markets had predicted this move, the majority of economists polled by Reuters had expected a smaller cut of 25 basis points. The Swiss franc weakened after the decision, with the euro and dollar both gaining against it.
The SNB’s new chairman, Martin Schlegel, stated that the rate cut was aimed at countering lower inflationary pressure. He also left the door open for further interest rate cuts next year, but said it was now less likely that rates would go below 0%. This is a change from his previous stance, where he had hinted at the possibility of negative interest rates.
This decision marks the first under Schlegel’s leadership and is an acceleration from the policy of his predecessor, Thomas Jordan, who oversaw three 25 basis point cuts this year. The cut was made possible by low Swiss inflation, which has been within the SNB’s target range of 0-2% since May 2023.
Schlegel also highlighted the uncertainty surrounding future price developments, as the SNB forecasted lower inflation of 0.3% in 2025. He also mentioned that the actions of other central banks would be taken into account, with the European Central Bank and the U.S. Federal Reserve expected to cut rates in the near future.
The cut was welcomed by industry associations Swissmem and SwissMechanic, as it will help to ease the pressure on Swiss exporters who are already facing subdued demand in Europe and China.
Overall, the SNB’s decision to cut interest rates reflects its commitment to maintaining price stability and supporting the Swiss economy in the face of global economic uncertainties. It remains to be seen how this move will impact the Swiss franc and the country’s export sector in the long run.