Central bank cuts interest rate to 1.5%

There Swiss National Bank anticipated the trend of easing of monetary policy of the central banks and, with the main objective of slowing down the rise of the Swiss franc (CHF) against the greenback, anticipated a interest rate cut by 25 basis points. A move that favored an immediate depreciation of the local currency with positive effects on the Swiss economy.

The decision

The monetary policy committee of the Swiss National Bank (SNB) has decided to cut the key interest rate by 25 basis points, bringing it to 1.5% from 1.75% previously. The change comes into force from March 22, 2024.

The “sight” assets held by banks at the SNB will be remunerated up to a certain limit at the key rate of the Swiss National Bank, those exceeding this limit at an interest rate of 1%.

The National Bank also reiterated its opinion availability to act if necessary on the foreign exchange market to stop the appreciation of the local currency through direct operations.

The victory over inflation

“The easing of monetary policy – ​​underlines the statement – ​​was possible thanks to the effectiveness of the fight against inflation over the last two and a half years”. Since the start of the year inflation decreased further, reaching 1.2% in February, well below the 2% target. The decline is attributable to the lower increase in the price of goods, while the greatest push to prices currently comes from internal services.

The inflation forecast remains within the price stability area throughout the entire forecast horizon. It is within the annual average to 1.4% for 20241.2% for 2025 and 1.1% for 2026. The forecast is based on the assumption that the SNB policy rate remains at 1.5% throughout the entire forecast horizon.

“With its decision, the National Bank takes into account the impact of the appreciation of the franc in real terms over the last year,” explains the statement, ensuring that the National Bank “will continue to carefully monitor the evolution of inflation and, if necessary, it will adapt monetary policy again to ensure that the increase remains within the area of ​​price stability in the medium term”.

Why cut rates

“The lowering of the interest rate it also favors the performance of the economy“, explains the central bank, reporting that the world economy grew at a moderate pace in the fourth quarter of 2023 and that global economic growth is expected to remain moderate in the coming quarters.

“This scenario for the world economy is still subject to significant risks” underlines the SNB, reporting that even in Switzerland “GDP growth will presumably remain limited” and there are downside risks. “The weak foreign demand and the real appreciation of the franc over the last year are having a slowing effect.”

Surprise effect?

If the decision of the Swiss National Bank surprised many observerssomeone on the eve of the meeting was already beginning to sense that the SNB might have intervened early.

We welcome news of the rate cut and we think it is prudent that the SNB has recognized that the progress made in bringing inflation back towards target leaves room for easing monetary policy to support growth. We believe that an orientation towards a slightly more accommodating policy so much more important in the context of the last 10-15 years of fighting against outright deflation, which had trapped the bank in a negative rate regime,” State Street experts say, indicating that “cutting rates will not only directly reduce costs of local financing, but it will also encourage a gradual decline in the CHFwhich will further support growth.”

For NS Partners “instead, it will be necessary to understand whether the move to the SNB's surprise could prompt similar actions from the Fed and ECB“. “In our opinion, this should not happen – says Giacomo Calef, country head of NS Partners – as the actions of the various central banks refer to the macroeconomic contexts of their reference countries”.