Switzerland's Central Bank Unexpectedly Cuts Policy Rate

(RTTNews) - The Swiss National Bank made a surprise interest rate cut on Thursday and became the first major central bank to ease the policy in the current cycle as the fight against inflation over the last two and a half years has been effective.

The SNB unexpectedly lowered the policy rate by 25 basis points to 1.5 percent. Markets had expected the bank to keep the rate unchanged. The central bank said it remains willing to be active in the foreign exchange market as necessary.

SNB President Thomas Jordan said, "Our decision takes into account the significantly reduced inflationary pressure as well as the appreciation of the Swiss franc in real terms over the past year."

The policy rate cut supports economic activity and today's easing ensures that monetary conditions remain appropriate, the bank said. "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," the bank said.

With the bank sounding more dovish and inflation likely to undershoot its forecasts, the bank is likely resort to two more rate cuts this year, Capital Economics' economist Adrian Prettejohn said. The SNB downgraded inflation outlook for 2024 to 1.4 percent from 1.9 percent. Similarly, the projection for 2025 was trimmed to 1.2 percent from 1.6 percent. The central bank sees inflation at 1.1 percent in 2026.

Regarding future economic performance, the central bank said it is likely to remain moderate in the coming quarters. The SNB forecast the economy to grow by around 1 percent this year.