Swiss central bankers cut interest rates for the second consecutive time Thursday in a move that was unexpected for at least a few observers.
The Swiss National Bank said it would lower its benchmark policy rate by 25 basis points to 1.25% starting Friday. About two-thirds of analysts had predicted the step, with the rest awaiting a hold, according to Reuters.
On the social media platform X, Frederik Ducrozet from Pictet Wealth Management pointed out that SNB officials used the statement on the decision to say “underlying inflationary pressure has decreased again”, and inflation projections were revised lower in the longer term, ie below the historical average.”
“Another cut is possible (even if they think they’re close to neutral),” Ducrozet noted.
During Thursday’s press conference, SNB Chairman Thomas Jordan said the bank’s neutral rate is near or just above zero.
Adrian Prettejohn from Capital Economics wrote that for the Swiss central bank, this was likely a case of two and done in 2024. “We think that the SNB will not cut rates again this year as we are now no longer confident that underlying inflationary pressures are abating because labour compensation is growing at a strong rate and services inflation remains very sticky.”
Jordan noted during the press conference that there was a low chance for a wage-price spiral in Switzerland.
Leading the way
The Swiss rate decision followed the widely expected 25bp reduction in the European Central Bank’s key interest rates, leaving the Swiss policymakers again one cut ahead of their peers in at the euro area bank headquarters in Frankfurt.
Last quarter, markets around the globe had been preparing for a spate of rate cuts from central banks in high income countries. The situation now appears to be one of hesitation: Analysts forecast fewer stepdowns from the ECB this year, and after saying it plans three cuts this year, the US Federal Reserve may only institute one. The Bank of Canada has already lowered borrowing costs, but the Bank of England has yet to begin its expected policy loosening.
Most central bankers can only dream of the low levels of consumer price growth expected in Switzerland. The SNB said on Thursday that it lowered its inflation forecast for this year to 1.3% from the 1.4% announced in March. It also cut a tenth for 2025 and 2026, reducing them to 1.1% and 1.0% respectively. The bank’s inflation target is less than 2% a year.
Jordan said, “Forecasted inflation is within the range of price stability over the entire forecast horizon,” a sentiment he also expressed in March.
The SNB repeated its June forecast of Swiss GDP growth of around 1%, noting that it expects that number to rise to 1.5% in 2025.
Save-haven status returns for CHF
Political shifts in the neighbourhood are pressuring Alpine rate-setters due to rising interest in their currency, according to Jordan. “The recent appreciation is above all attributable to political uncertainties in Europe. This, too, is contributing to uncertainty about the development of inflation remaining elevated.”
The comments come after right-wing parties increased in popularity following elections for European Parliament, a development that sparked French President Emmanuel Macron to call for snap elections after the success of the far-right National Rally party among his constituents. The first round of balloting is scheduled for 30 June.
Due to the pressure on the currency, the SNB said it “remains willing to be active in the foreign exchange market as necessary.”
Chairman to be named later
Jordan is scheduled to leave the bank in September. Vice-Chairman Martin Schlegel is seen by many as his replacement, but the bank has not commented on the upcoming change.
Jordan said Thursday that he would attend the bank’s next decision-making meeting and follow-on press conference in September.
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- 25bp reduction matches March move
- Second straight cut comes despite more inflation
- Bank plans to act in FX market if needed
- Cut allows bank to “maintain appropriate monetary conditions”
- Chairman Jordan’s last meeting set for September
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
20 June 2024 | 09:10 GMT
Swiss central bankers cut interest rates for the second consecutive time Thursday in a move that was unexpected for at least a few observers.
The Swiss National Bank said it would lower its benchmark policy rate by 25 basis points to 1.25% starting Friday. About two-thirds of analysts had predicted the step, with the rest awaiting a hold, according to Reuters.
On the social media platform X, Frederik Ducrozet from Pictet Wealth Management pointed out that SNB officials used the statement on the decision to say “underlying inflationary pressure has decreased again”, and inflation projections were revised lower in the longer term, ie below the historical average.”
“Another cut is possible (even if they think they’re close to neutral),” Ducrozet noted.
During Thursday’s press conference, SNB Chairman Thomas Jordan said the bank’s neutral rate is near or just above zero.
Adrian Prettejohn from Capital Economics wrote that for the Swiss central bank, this was likely a case of two and done in 2024. “We think that the SNB will not cut rates again this year as we are now no longer confident that underlying inflationary pressures are abating because labour compensation is growing at a strong rate and services inflation remains very sticky.”
Jordan noted during the press conference that there was a low chance for a wage-price spiral in Switzerland.
Leading the way
The Swiss rate decision followed the widely expected 25bp reduction in the European Central Bank’s key interest rates, leaving the Swiss policymakers again one cut ahead of their peers in at the euro area bank headquarters in Frankfurt.
Last quarter, markets around the globe had been preparing for a spate of rate cuts from central banks in high income countries. The situation now appears to be one of hesitation: Analysts forecast fewer stepdowns from the ECB this year, and after saying it plans three cuts this year, the US Federal Reserve may only institute one. The Bank of Canada has already lowered borrowing costs, but the Bank of England has yet to begin its expected policy loosening.
Most central bankers can only dream of the low levels of consumer price growth expected in Switzerland. The SNB said on Thursday that it lowered its inflation forecast for this year to 1.3% from the 1.4% announced in March. It also cut a tenth for 2025 and 2026, reducing them to 1.1% and 1.0% respectively. The bank’s inflation target is less than 2% a year.
Jordan said, “Forecasted inflation is within the range of price stability over the entire forecast horizon,” a sentiment he also expressed in March.
The SNB repeated its June forecast of Swiss GDP growth of around 1%, noting that it expects that number to rise to 1.5% in 2025.
Save-haven status returns for CHF
Political shifts in the neighbourhood are pressuring Alpine rate-setters due to rising interest in their currency, according to Jordan. “The recent appreciation is above all attributable to political uncertainties in Europe. This, too, is contributing to uncertainty about the development of inflation remaining elevated.”
The comments come after right-wing parties increased in popularity following elections for European Parliament, a development that sparked French President Emmanuel Macron to call for snap elections after the success of the far-right National Rally party among his constituents. The first round of balloting is scheduled for 30 June.
Due to the pressure on the currency, the SNB said it “remains willing to be active in the foreign exchange market as necessary.”
Chairman to be named later
Jordan is scheduled to leave the bank in September. Vice-Chairman Martin Schlegel is seen by many as his replacement, but the bank has not commented on the upcoming change.
Jordan said Thursday that he would attend the bank’s next decision-making meeting and follow-on press conference in September.
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