The Swiss National Bank (SNB) made a surprise move by slashing its main interest rate by 25 basis points to 1.50% on Thursday, becoming the first major international bank to roll back a strict monetary policy implemented to deal with inflation. This move took place during the first rate decision since Thomas Jordan, Chairman of the central bank, announced his September resignation. The SNB also reduced its sight deposit rate to 1.50%.
The SNB had not made a rate cut in nine years, and it became the first to declare its policy decisions on a day filled with similar announcements from other European central banks, such as the Bank of England and the Norwegian Central Bank. The Norwegian Central Bank held its rates steady, and it is expected that the Bank of England will also maintain its current stance.
The SNB’s action led to the Swiss franc slumping to a low not seen in eight months against the euro. It also caused a stumble in Swiss government bond yields while bolstering Zurich-listed stocks. Contrary to predictions from the majority of analysts surveyed by Reuters, the generally cautious SNB didn’t maintain its 1.75% rate and hold off on changes for another quarter.
After a slide in Swiss inflation to 1.2% in February, which marked the ninth consecutive month of falls within the SNB’s 0-2% target range, this reduction was taken. Inflation has stayed under 2% for many months, reflecting the success of the anti-inflation efforts over the past two and a half years, as Jordan pointed out to reporters. He also mentioned that the SNB’s latest forecast indicates that inflation could sustain this range in the coming years.
The SNB’s decision was influenced by the easing inflationary pressures and the recent increase in the real value of the Swiss franc over the last year. The bank also stated that this cut would boost economic activity.
“This is the logical outcome of the current economic and market situation, which also points to further cuts in the future,” stated Philipp Burckhardt, a Fixed Income Strategist and Portfolio Manager at Lombard Odier IM. He added, “This is a perfect parting gift from Thomas Jordan, who has set a clear course for his successor.”