Swiss central bankers surprised markets Thursday by cutting interest rates, the first reduction in what is expected to be many more in G10 countries as the post-pandemic surge in worldwide inflation continues to abate.
The Swiss National Bank said it would lower its benchmark policy rate by 25 basis points to 1.50% starting Friday, a move expected by about a third of traders on money markets, with most analysts predicting a hold.
Markets around the globe are prepping for lower borrowing costs. The US Federal Reserve said Wednesday that it plans three rate cuts this year, and one SNB neighbour, the European Central Bank, is widely expected to start reducing rates in June at the latest. Downward moves this year are also expected from both the Bank of England and the Bank of Canada.
Policies to curb consumer price growth allowed alpine central bankers to move ahead with rate cuts, according to SNB Chairman Thomas Jordan. “The easing of our monetary policy has been made possible because the fight against inflation over the past two and a half years has been effective. For some months now, inflation has been back below 2% and thus in the range we equate with price stability. According to our new forecast, inflation is also likely to remain in this range over the next few years.”
Jordan called the decision “very easy” due to the downward shift in inflation forecasts. The bank projected average annual inflation at 1.4% for 2024, a drop of half a percentage point from the previous forecast in December. It lowered its 2025 expectations to 1.2% from 1.6% and said it foresees consumer price growth of 1.1% in 2026.
Reiterating that the SNB does not offer forward guidance, Jordan said the bank will continue to examine price growth when considering future monetary policy. “We will look at the inflation forecast in three months.”
The euro spiked almost a cent against the franc following the rate cut announcement, and one observer blamed the strength of the Swiss currency for the timing of the move. “There was no need for the SNB to take this step now,” noted Thomas Gitzel, chief economist at VP Bank. “On the one hand, the key interest rate of 1.75% was not high in absolute terms; on the other hand, inflation risks have not yet been completely averted. In our view, the SNB could have taken its time with interest rate cuts. However, the strong franc was probably also taken into consideration by the policymakers. A weaker franc helps the Swiss manufacturing industry, which relies on exports.”
Just the beginning
Not only are rate cuts expected from a number of major central banks, more are likely on the way in the alpine nation.
Writing on the social media platform X, Frederik Ducrozet, head of macroeconomic research, at Pictet Wealth Management, cited this comment from the central bank as key: “The SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium term.”
He noted that the statement now means the SNB has “an easing bias” and is “likely to cut again in June”.
Capital Economics, which had predicted Thursday’s rate cut, said it also expects further reductions in Switzerland: “We think inflation will come in even lower than the new SNB forecasts imply and remain around the current level of 1.2% before falling to below 1.0% next year. Accordingly, we forecast the SNB to cut rates at the September and December meetings taking the policy rate to 1%, where we think it will remain throughout 2025 and 2026.”
And at least one observer wondered if the Swiss move would accelerate the timetable for other central banks. Oliver Rakau from Oxford Economics tweeted: “If the ECB ever had the fear of moving first, is that now gone after the SNB cut?”
Thursday’s press conference offered no hints about a successor for Chairman Jordan, who earlier this month announced that he would leave the bank in September. When asked about the job, current vice-chairman and possible replacement Martin Schlegel declined comment.
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- Benchmark policy rate lowered 25 basis points to 1.50%
- Falling inflation drives policy change
- Did CHF strength move cut forward?
- Still no word on replacement for SNB chief Jordan’s
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
21 March 2024 | 10:10 GMT
Swiss central bankers surprised markets Thursday by cutting interest rates, the first reduction in what is expected to be many more in G10 countries as the post-pandemic surge in worldwide inflation continues to abate.
The Swiss National Bank said it would lower its benchmark policy rate by 25 basis points to 1.50% starting Friday, a move expected by about a third of traders on money markets, with most analysts predicting a hold.
Markets around the globe are prepping for lower borrowing costs. The US Federal Reserve said Wednesday that it plans three rate cuts this year, and one SNB neighbour, the European Central Bank, is widely expected to start reducing rates in June at the latest. Downward moves this year are also expected from both the Bank of England and the Bank of Canada.
Policies to curb consumer price growth allowed alpine central bankers to move ahead with rate cuts, according to SNB Chairman Thomas Jordan. “The easing of our monetary policy has been made possible because the fight against inflation over the past two and a half years has been effective. For some months now, inflation has been back below 2% and thus in the range we equate with price stability. According to our new forecast, inflation is also likely to remain in this range over the next few years.”
Jordan called the decision “very easy” due to the downward shift in inflation forecasts. The bank projected average annual inflation at 1.4% for 2024, a drop of half a percentage point from the previous forecast in December. It lowered its 2025 expectations to 1.2% from 1.6% and said it foresees consumer price growth of 1.1% in 2026.
Reiterating that the SNB does not offer forward guidance, Jordan said the bank will continue to examine price growth when considering future monetary policy. “We will look at the inflation forecast in three months.”
The euro spiked almost a cent against the franc following the rate cut announcement, and one observer blamed the strength of the Swiss currency for the timing of the move. “There was no need for the SNB to take this step now,” noted Thomas Gitzel, chief economist at VP Bank. “On the one hand, the key interest rate of 1.75% was not high in absolute terms; on the other hand, inflation risks have not yet been completely averted. In our view, the SNB could have taken its time with interest rate cuts. However, the strong franc was probably also taken into consideration by the policymakers. A weaker franc helps the Swiss manufacturing industry, which relies on exports.”
Just the beginning
Not only are rate cuts expected from a number of major central banks, more are likely on the way in the alpine nation.
Writing on the social media platform X, Frederik Ducrozet, head of macroeconomic research, at Pictet Wealth Management, cited this comment from the central bank as key: “The SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy again if necessary to ensure inflation remains within the range consistent with price stability over the medium term.”
He noted that the statement now means the SNB has “an easing bias” and is “likely to cut again in June”.
Capital Economics, which had predicted Thursday’s rate cut, said it also expects further reductions in Switzerland: “We think inflation will come in even lower than the new SNB forecasts imply and remain around the current level of 1.2% before falling to below 1.0% next year. Accordingly, we forecast the SNB to cut rates at the September and December meetings taking the policy rate to 1%, where we think it will remain throughout 2025 and 2026.”
And at least one observer wondered if the Swiss move would accelerate the timetable for other central banks. Oliver Rakau from Oxford Economics tweeted: “If the ECB ever had the fear of moving first, is that now gone after the SNB cut?”
Thursday’s press conference offered no hints about a successor for Chairman Jordan, who earlier this month announced that he would leave the bank in September. When asked about the job, current vice-chairman and possible replacement Martin Schlegel declined comment.