The Swiss National Bank (SNB) reduced its key interest rate by 25 basis points on September 26, marking the third cut of the year. The current rate now sits at 1.00%, the lowest it has been since early 2023.
This decision aligns with similar actions taken by the European Central Bank and the US Federal Reserve, reflecting escalating worries about the state of the economy.
During a press conference, Chairman of the Governing Board of the Swiss National Bank Thomas Jordan indicated that additional rate cuts might be warranted as inflationary pressures begin to diminish.
He mentioned that inflation in Switzerland dropped to 1.1% in August, falling within the central bank's target range of 0% to 2%. Jordan emphasized that further measures may be necessary to maintain price stability in the medium term.
At the same time, the SNB significantly revised its inflation projections for the upcoming years. The forecast for 2024 was adjusted from 1.3% to 1.2%, for 2025 from 1.1% to 0.6%, and for 2026 from 1.0% to 0.7%. These adjustments underscore the pressing need for the SNB to recalibrate its monetary policy in light of the shifting economic landscape.
In response to the announcement of the rate cut, the Swiss franc appreciated, reaching its highest value against the euro in nine years. This surge has raised concerns for Swiss exporters, as a stronger franc could hinder their competitiveness in the global market.
Jordan noted that the franc's strengthening poses additional challenges for export companies, potentially providing more impetus for the SNB to lower the currency's value through rate cuts.
Analysts have largely viewed the SNB's decision as a subtle indication of readiness for further monetary easing. Charlotte Montpellier, chief economist at ING, described the rate cut as “the softest one could have hoped for” and pointed out the sharply revised outlook on future inflation levels. Karsten Junius, chief economist at J Safra Sarasin, shared this perspective, labeling it as “the strongest hint towards future policy decisions.”
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