The Swiss National Bank reduced interest rates by 25 basis points on Thursday, echoing steps to lower borrowing costs by the European Central Bank and U.S. Federal Reserve, and left the door wide open for more rate cuts as inflation cools sharply.
The SNB cut its policy rate to 1.00%, the lowest level since early 2023, as expected by analysts in a Reuters poll. The cut was its third such reduction this year. Markets had priced in a 55% probability of a 25 basis point cut beforehand.
The decision, the last in the 12-year tenure of SNB Chairman Thomas Jordan, was enabled by the taming of inflation in Switzerland - which slowed to 1.1% in August and has been within the central bank's 0-2% target range for the last 15 months.
The SNB is ready to cut interest rates again, Jordan said after the decision, noting that inflationary pressure in Switzerland had decreased significantly.
"Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term," he said in prepared remarks for a press conference.
The central bank slashed its inflation forecasts for 2025 and 2026 on Thursday and predicted consumer price growth of 0.6% in the second quarter of 2027.
The Swiss franc has appreciated in recent weeks, hitting its highest level in nine years against the euro in early August, adding to difficulties facing Switzerland's exporters. It strengthened after the 25-basis-point cut was announced.
The cut follows similar monetary policy easing by the ECB and the Fed earlier this month.
Charlotte Montpellier, senior economist at ING, said the SNB's 25 point cut was "the most dovish you could ask for."
"Not only is the SNB making it very clear that further rate cuts may be necessary, but it has also revised its inflation forecasts very sharply downwards, and much more sharply than expected," she said.
Karsten Junius, chief economist at J Safra Sarasin, saw the bank's outlook as more dovish than markets expected.
"It also mentioned clearly that it might need further interest rate cuts in the future in order to fight undesirably low inflation," he said. "This is the strongest hint towards future policy decisions that the SNB has give in the past years and a break from previous communication patterns."
SWISS FRANC
The SNB trimmed its 2024 inflation forecast to 1.2% from its 1.3% prediction in June. It also cut its forecasts for 2025 to 0.6% from 1.1% previously and for 2026 to 0.7% from 1.0%.
"With inflation now expected to average 0.6% in 2025 and 0.7% in 2027, the SNB seems to want to send a very clear signal to the markets that further rate cuts are on the way, in order to weaken the Swiss franc," said Montpellier at ING.
SNB chief Jordan recently highlighted the success the Swiss central bank has had in fighting inflation, which enabled it to become the frontrunner among central banks in lowering borrowing costs, cutting rates in both March and June.
He also acknowledged the problems that the recent rise in the franc has created for exporters, reinforcing hopes that lower interest rates - which could weaken the safe haven currency - could be on the way.
