Market Analysis

Swiss National Bank Maintains Rate Cuts, Cites Lower Inflation Outlook

Amos Simanungkalit · 20 Jun 202410.9K Views

The Swiss National Bank (SNB) lowered interest rates on Thursday, affirming its role at the forefront of global monetary easing efforts. This move, reducing the policy rate by 25 basis points to 1.25%, was in line with expectations following a similar cut in March.

The decision was finely balanced, considering recent economic growth and stabilized inflation trends in Switzerland. According to the SNB, underlying inflationary pressures have diminished compared to the previous quarter. This rate adjustment aims to maintain appropriate monetary conditions, aligning with the SNB's new inflation forecast, which remains largely consistent with March's projections but slightly lower over the long term.

Before the announcement, markets had priced in a 68% probability of a rate cut, contrasting with a 32% chance of rates remaining unchanged. Following the SNB's decision, the Swiss franc depreciated while stocks surged, with the Swiss blue-chip stock index rising by 0.5% after initially showing little movement.

The SNB's action comes amid Switzerland's stable inflation rate of 1.4% in May, within the bank's targeted 0-2% range for the past 11 months. Factors contributing to Switzerland's low inflation include an energy mix less vulnerable to oil and gas price volatility, wage moderation, and currency strength buffering against imported inflation.

The SNB's rate cut in March made it the first major central bank to ease policy recently, preceding similar moves by the European Central Bank, Bank of Canada, and Sweden's Riksbank, responding to post-pandemic inflationary pressures. In contrast, the U.S. Federal Reserve opted to maintain rates steady last week, delaying anticipated rate hikes until later in the year.

The recent appreciation of the Swiss franc against the euro may have influenced the SNB's decision, as it seeks to avoid excessive currency appreciation amid economic uncertainties in Europe, including concerns over French debt and upcoming elections.

Looking ahead, UBS economist Alessandro Bee suggests that further rate cuts by the SNB may be limited, approaching what is considered a nominal neutral rate level of around 1%.