The Swiss National Bank made its third move to ease monetary policy this year on Thursday by reducing its key interest rate by 25 basis points to 1.0%. This adjustment, which was expected by 30 out of 32 analysts surveyed in a Reuters poll, marks the SNB’s third interest rate cut of 2024. The SNB was the first major Western central bank to lower interest rates back in March.
This latest rate cut aligns with similar actions taken by the European Central Bank and the U.S. Federal Reserve, which recently reduced their interest rates by 50 basis points. Domestically, Swiss inflation remains subdued, with the most recent data showing a 1.1% annual increase in August.
SNB Chairman Thomas Jordan, who is set to leave the central bank at the end of the month, mentioned that further rate cuts might be necessary to stabilize inflation within the range of price stability in the next three months. However, he did not specify the number of policy easing interventions that might be required.
The SNB revised its inflation forecast significantly lower than previous indications, attributing this adjustment to factors such as the strength of the local currency, a decline in oil prices, and upcoming electricity price cuts in January. The new forecast projects average annual inflation rates of 1.2% for 2024, 0.6% for 2025, and 0.7% for 2026.
Following the interest rate decision, the Swiss franc strengthened against major currencies. The SNB acknowledged that the appreciation of the Swiss franc in recent months has contributed to the reduction in inflationary pressure, prompting the need for monetary policy easing.
Some analysts have raised concerns about Switzerland potentially facing deflation, a condition uncommon among major Western economies. The SNB has been adjusting its inflation forecasts downward and may consider further rate cuts or foreign exchange interventions to maintain price stability.
SNB Chairman Jordan dismissed immediate concerns about deflation, stating that the current inflation forecast remains within the range of price stability. However, he acknowledged the possibility of future rate reductions to keep inflation within the target range of 0-2%.
Economists suggest that the SNB may resort to significant foreign exchange interventions once the policy rate approaches 0.5%. Jordan confirmed the central bank’s readiness to use foreign exchange interventions if deemed necessary to impact monetary conditions positively.
