The Swiss National Bank (SNB) surprised markets on Thursday by slashing its key interest rate by 50 basis points, a significant departure from the 25 basis-point reduction most economists had predicted.
This marked effort to combat stubbornly low inflation and the strength of the Swiss franc only highlights the ongoing struggle faced by the Swiss regulators.
Switzerland emerged as the first significant economy to ease its monetary policy in March. The country has enacted four rate cuts this year, marking a concerted effort to moderate the appreciation of the national currency and reverse the declining consumer prices.
This relentless pursuit of stability continues under the leadership of the bank’s new chair, Martin Schlegel, with the latest cut taking into account the decreased underlying inflationary pressure the country is grappling with.
The central bank affirmed its commitment to closely overseeing the ongoing economic scenario and is ready to revisit and adjust its monetary policy, as needed, to ensure that inflation stays within boundaries aligning with medium-term price stability.
Further, the bank has unveiled a revised inflation forecast that stands below its September projection. This downgrade echoes the “lower-than-expected” performance of oil-based goods and food industries, while also predicting negligible transformation in the mid-term landscape.
The revised forecast released estimates average annual inflation to be 1.1% for 2024, reducing to 0.3% in 2025 before a slight increase to 0.8% in 2026. This projection is underpinned by the assumption that the SNB’s policy rate will remain stable at 0.5% throughout the forecasted period.
