Swiss central bankers lowered their benchmark interest rate for the fourth consecutive time Thursday, with the size of the reduction surprising some economists.
The Swiss National Bank said it would cut its benchmark policy rate by 50 basis points to 0.5% starting Friday. Most analysts had predicted a 25bp reduction, but some had suggested officials might decide on the so-called jumbo move that materialised Thursday. The decision followed previous 25bp cuts in March, June, and September.
SNB Chairman Martin Schlegel, who replaced his predecessor Thomas Jordan in October, justified the large cut by noting, “Inflation has been lower than we expected in September,” adding that inflationary pressure has also ebbed.
In its statement, the bank said “it will continue to monitor the situation closely and adjust monetary policy if necessary to ensure that inflation remains within the range of price stability in the medium term,” This was a change in language from September that the guidance of “further cuts … may become necessary in the coming quarters.”
On Thursday, the SNB also announced its forecasts for consumer price growth for this year to 1.1%, a tenth of a percentage point lower that its September estimate. The latest projection for 2025 dropped three-tenths to 0.3% to from last quarter’s prediction, with the prediction for 2026 up one-tenth to 0.8%.
The beginning of the end?
Schlegel pointed out that the new forecast is within the range of price stability over the entire forecast horizon, which in the case of the SNB is inflation between 0-2%.
With this in mind, one could posit that the bank has no need to act as price stability has been met for the foreseeable future. The SNB kicked off the cutting cycle among G10 central banks with its first-quarter move. Has it now become the first among those major economies to stop lowering rates?
“This morning’s 50bp rate cut by the SNB, which brought the policy rate to 0.5%, came as a surprise to most economists though it was balanced by a revised policy statement which implies that policymakers expect this to be the final rate cut of the cycle as it removed any mention of further cuts,” noted Adrian Prettejohn from Capital Economics. “We still expect at least one more rate cut next year, as we think policymakers will be forced to revise down their expectations for inflation over their forecast horizon.”
SNB said it expects Swiss GDP growth of around 1% this year and between 1-1.5% in 2025.
Politics are expected to play a role in the country’s future, the SNB noted. “Uncertainty regarding the economic outlook has increased over the past few months. In particular, the future shape of economic policy in the US is still uncertain, and political uncertainty has also increased in Europe.”
Negative rates now less likely, bank chief says
When asked about SNB borrowing costs falling below 0%, Schlegel repeated a phrase he has used before: “Nobody likes negative interest rates,” adding: “The Swiss National Bank does not like negative interest rates.”
That said, while admitting that the bank cannot rule out borrowing costs dropping into the red, he said thanks to the latest policy move, “The likelihood of negative interest rates has become smaller.”
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- Size of reduction of exceeds market forecasts
- Surprising weak inflation drives policy
- Political uncertainty expected in Europe, US
- Is bank done lowering rates?
By Eric Culp, European Editor
LiveSquawk News
@EricCulpLS
12 December 2024 | 10:20 GMT
Swiss central bankers lowered their benchmark interest rate for the fourth consecutive time Thursday, with the size of the reduction surprising some economists.
The Swiss National Bank said it would cut its benchmark policy rate by 50 basis points to 0.5% starting Friday. Most analysts had predicted a 25bp reduction, but some had suggested officials might decide on the so-called jumbo move that materialised Thursday. The decision followed previous 25bp cuts in March, June, and September.
SNB Chairman Martin Schlegel, who replaced his predecessor Thomas Jordan in October, justified the large cut by noting, “Inflation has been lower than we expected in September,” adding that inflationary pressure has also ebbed.
In its statement, the bank said “it will continue to monitor the situation closely and adjust monetary policy if necessary to ensure that inflation remains within the range of price stability in the medium term,” This was a change in language from September that the guidance of “further cuts … may become necessary in the coming quarters.”
On Thursday, the SNB also announced its forecasts for consumer price growth for this year to 1.1%, a tenth of a percentage point lower that its September estimate. The latest projection for 2025 dropped three-tenths to 0.3% to from last quarter’s prediction, with the prediction for 2026 up one-tenth to 0.8%.
The beginning of the end?
Schlegel pointed out that the new forecast is within the range of price stability over the entire forecast horizon, which in the case of the SNB is inflation between 0-2%.
With this in mind, one could posit that the bank has no need to act as price stability has been met for the foreseeable future. The SNB kicked off the cutting cycle among G10 central banks with its first-quarter move. Has it now become the first among those major economies to stop lowering rates?
“This morning’s 50bp rate cut by the SNB, which brought the policy rate to 0.5%, came as a surprise to most economists though it was balanced by a revised policy statement which implies that policymakers expect this to be the final rate cut of the cycle as it removed any mention of further cuts,” noted Adrian Prettejohn from Capital Economics. “We still expect at least one more rate cut next year, as we think policymakers will be forced to revise down their expectations for inflation over their forecast horizon.”
SNB said it expects Swiss GDP growth of around 1% this year and between 1-1.5% in 2025.
Politics are expected to play a role in the country’s future, the SNB noted. “Uncertainty regarding the economic outlook has increased over the past few months. In particular, the future shape of economic policy in the US is still uncertain, and political uncertainty has also increased in Europe.”
Negative rates now less likely, bank chief says
When asked about SNB borrowing costs falling below 0%, Schlegel repeated a phrase he has used before: “Nobody likes negative interest rates,” adding: “The Swiss National Bank does not like negative interest rates.”
That said, while admitting that the bank cannot rule out borrowing costs dropping into the red, he said thanks to the latest policy move, “The likelihood of negative interest rates has become smaller.”
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