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

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

This move raises the bank’s key interest rate to 0.5%. More than 85% of economists They were surveyed Reuters had expected the bank to implement a smaller cut of 25 basis points.

Switzerland has become the first major economy to loosen its grip on monetary policy In MarchFour reductions were implemented this year as part of the battle to tame the rise in the value of the national currency and the decline in consumer prices.

“Underlying inflationary pressures fell again this quarter. Today’s easing of monetary policy by the SNB 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 will adjust its monetary policy if necessary to ensure inflation remains within a range consistent with price stability in the medium term.”

The bank also issued a new conditional inflation forecast lower than its September forecast, reflecting a “lower than expected” reading for oil products and food and expecting “little change over the medium term.”

The new forecasts put average annual inflation at 1.1% for 2024, 0.3% for 2025, and 0.8% for 2026. It assumes that the SNB interest rate will stabilize at 0.5% over the entire forecast horizon.

“More cuts are coming, and zero interest rates are on the table by June. The 0.3% conditional forecast for next year is probably too close for comfort for policymakers, especially given the recent record of revising that forecast downward at every meeting this year,” he said. Kyle Chapman, foreign exchange market analyst at Ballinger Group, said in a note following the decision:

“At the same time, the franc is likely to come under greater pressure as the European Central Bank outpaces the Swiss Central Bank in cutting interest rates and uncertainty over a Trump presidency increases safe haven flows,” he added.

The US dollar rose by 0.4% against the Swiss franc by 9:17 am London time, while the euro rose by 0.57%.

Swiss inflation reached 0.7% On an annual basis in November, compared to an annual reading of 0.6% In October. Widely viewed as a safe haven amid political turmoil in the euro zone, the franc has largely resisted capitulation despite the Swiss central bank’s interest rate cuts. Its rise has clouded the prospects for Swiss export opportunities, which were already diminished 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 citing expectations of further declines in orders, sales and margins in the fourth quarter.

Fellow industry association Swissmem reported in November of continued decline in Switzerland’s technology sectors, Confirming: “The main indicators do not point to a recovery any time soon. Against this background, efforts must be intensified at the political level in order to facilitate access to the growing markets of the Swiss export economy. Concretely, free trade.”

Official figures revealed that the broader economy recorded “below average growth” of 0.2% in the third quarter, after 0.4% in the previous three months. At the end of Novemberburdened by the industrial sector.

Market focus will shift later in the session to the European Central Bank meeting, which is widely expected to cut interest rates by 25 basis points.