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Swiss National Bank Surprises Market with Interest Rate Cut, Lowers Inflation Forecasts


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The Swiss National Bank surprised the market by announcing a decision to lower its main policy rate by 0.25 percentage points to 1.5%. This move was in response to the expectation that national inflation will likely remain below 2% in the foreseeable future. Economists had predicted that the Swiss central bank would keep rates at 1.75%. The bank stated that inflation has been below 2% for several months, which is within the range that the SNB considers as price stability. The bank also reduced its inflation forecasts for the coming years.

Analysts at Capital Economics predict that there will be two more rate cuts by the SNB this year due to the bank’s more dovish stance and the expectation that inflation will fall below the SNB’s forecasts. They anticipate that the policy rate will reach 1% and remain at that level in 2025 and 2026. The September meeting is likely to be the last under the leadership of SNB Chairman Thomas Jordan, who will step down after 12 years.

The SNB expects Swiss economic growth to remain modest in the coming quarters, with GDP projected to expand by around 1% this year. The bank acknowledges the significant uncertainty surrounding its forecasts, especially in light of weaker economic activity abroad and the weakening momentum in the mortgage and real estate markets. However, vulnerabilities in these markets remain.

On a global scale, the SNB expects moderate economic growth in the coming quarters, along with a decrease in inflation due to restrictive monetary policies. The bank recognizes significant risks and geopolitical tensions that could impact the international economic outlook.

SNB Chairman Thomas Jordan stated that the improved inflation forecast has allowed the bank to lower rates. He mentioned that the bank will reassess the situation in June to determine if further rate cuts are necessary. The SNB remains prepared to intervene in the foreign exchange market if needed to ensure appropriate monetary conditions. Jordan did not comment on whether other central banks would follow the SNB’s lead in loosening their monetary policies but expressed no concerns about the potential impact on the Swiss franc.

Switzerland is the first advanced economy to cut interest rates following a period of high inflationary pressures caused by the Covid-19 pandemic’s impact on global trade and Russia’s war in Ukraine. Liquidity is emphasized as crucial to the Swiss banking sector, and discussions are ongoing between banks and the SNB to ensure sufficient collateral in case of emergencies.

In contrast to the SNB’s decision, Norway’s central bank maintained its rates at 4.5%, while the Bank of England left rates unchanged at 5.25%. The U.S. Federal Reserve also held rates steady and expects three rate cuts in 2024. The European Central Bank is considering a rate cut in June but remains highly dependent on data before making a decision.

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