June 20 2024: The Swiss National Bank (SNB) cut interest rates on Thursday for the second consecutive time, citing decreasing price pressures that allow it to maintain its leadership in the global policy easing cycle.
SNB Cuts Rates Amid Easing Inflation
The SNB reduced its policy rate by 25 basis points to 1.25%, a move anticipated by two-thirds of analysts polled by Reuters, following a similar cut in March. This decision, although finely balanced due to a recent rebound in economic growth and a break in the trend of falling inflation, reflects a decrease in underlying inflationary pressure compared to the previous quarter.
“The underlying inflationary pressure has decreased again compared to the previous quarter,” the SNB stated. “With today’s lowering of the SNB policy rate, the SNB is able to maintain appropriate monetary conditions.”
Economic and Inflation Forecasts
The SNB maintained its Swiss economic growth forecast for this year at 1.0% and slightly trimmed its inflation outlook for this year, next, and 2026, keeping expectations comfortably within the central bank’s 0-2% target range.
Market Reactions and Analyst Opinions
Following the rate decision, the Swiss franc weakened, and Switzerland’s blue-chip stock index rose 0.5%. ING economist Peter Vanden Houte noted that the rate cut was not surprising given the recent strengthening of the franc due to concerns about the upcoming French election affecting the euro.
“With decent Swiss GDP growth in the first quarter there was no real urgency for the SNB to cut rates, but given the still benign inflation outlook the SNB saw a window to ease: for the SNB it was more a rate cut because it could, not because it should,” Vanden Houte said.
Global Central Bank Activities
Thursday was a busy day for central banks, with the Bank of England expected to keep its rates unchanged and Norway’s central bank holding its rates steady, pushing a possible rate cut to next year.
The SNB’s decision follows steady inflation in Switzerland at 1.4% in May, with price rises within the SNB’s target band for the last 11 months. The SNB’s recent rate cuts have positioned it as the first major central bank to lower rates in the current cycle, followed by the European Central Bank, the central banks of Canada, and Sweden.
Economists predict limited room for further easing by the SNB, with one more quarter-point cut in September being possible but not guaranteed.
“With the latest rate cut, the policy rate is now closer to its terminal value, which we estimate at 1.00%,” said Maxime Botteron, economist at UBS in Zurich, referring to a potential end point of the current easing cycle. “This means that the potential for additional cuts is limited.”
