Zurich (AFP) – Switzerland’s central bank on Thursday cut its key interest rate by a quarter percentage point for the third time this year, citing the strong Swiss franc and the resulting lower inflationary pressure. Following similar cuts in March and June, the Swiss National Bank brought the rate down to one percent and indicated that further reductions may be coming.
“Inflationary pressure in Switzerland has again decreased significantly compared to the previous quarter,” the SNB said in a statement. “Among other things, this decrease reflects the appreciation of the Swiss franc over the last three months. The SNB’s easing of monetary policy today takes the reduction in inflationary pressure into account.” Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
– Pressure on exporters – While most economists expected the 0.25-percentage-point easing, some wondered whether the SNB would follow the US Federal Reserve, which cut rates by half a percentage point on September 18. Like gold, the Japanese yen, or German bonds, the Swiss franc is one of the major havens in which investors take refuge in times of uncertainty. Thursday’s decision came amid strong pressure from industry, including from the key watchmaking exports sector, to rein in the rise of the franc. The franc has accelerated significantly against the euro in recent months, approaching its peaks of late 2023 and early 2024. At around 1410 GMT, the Swiss franc was stable, up 0.06 percent against the US dollar at 0.8498 francs, and up 0.05 percent against the euro at 0.9462 francs.
– Inflation forecasts lowered – Inflation is below the SNB’s two percent target, falling back to 1.1 percent in August. The SNB lowered its inflation forecast to 1.2 percent for this year, 0.6 percent for 2026, and 0.7 percent in 2026. “The stronger Swiss franc, the lower oil price, and electricity price cuts announced for next January have contributed to the downward revision,” the central bank said. Adrian Prettejohn, Europe economist at London-based research group Capital Economics, suggested that rates would drop by quarter percentage points in December and again in March, taking the policy rate to 0.5 percent. “On top of the forward guidance they gave on future cuts, the lower inflation forecast shows that the SNB is increasingly concerned about inflation being too low and thinks a substantial amount of policy easing will be required,” he said.
Nadia Gharbi, senior economist at Pictet Wealth Management, said the SNB had “become very dovish.” “While the strength of the Swiss franc was useful during the post-Covid inflation surge, it has now become a deflationary force that is difficult for the SNB to control,” she said.
– Uncertainty ahead – The Swiss central bank said the forecast for Switzerland, as for the global economy, was still subject to significant risks and uncertainty. The SNB anticipates Swiss GDP growth of around one percent this year and around 1.5 percent for 2025. Switzerland’s biggest bank UBS said: “Against this backdrop, a policy rate below 0.50 percent does not seem warranted, in our view.”
The SNB said growth was solid in the second quarter of 2024, with the chemical and pharmaceutical industries particularly strong, while unemployment increased slightly. “Growth is likely to remain rather modest in Switzerland in the coming quarters due to the recent appreciation of the Swiss franc and the moderate development of the global economy,” the central bank said. The rate cut was the last major act for SNB chairman Thomas Jordan, who is stepping down at the end of the month in favour of vice-chairman Martin Schlegel. During his 12 years at the helm, Jordan has managed numerous crises, including the UBS takeover of the stricken bank Credit Suisse in 2023.
© 2024 AFP
