Switzerland Surprises by Becoming First Major Economy to Cut Interest Rates

The Swiss National Bank Surprises Market with Rate Cut

The Swiss National Bank made headlines on Thursday by announcing a surprise decision to lower its main policy rate by 0.25 percentage points to 1.5%. This move was in response to national inflation remaining below 2% and is expected to stay in that range for the foreseeable future, according to economists.

In a statement, the central bank noted that inflation has been below 2% for some time and is expected to continue in that range over the next few years. The latest data shows Swiss inflation fell to 1.2% in February.

Along with the rate cut, the SNB also reduced its annual inflation forecasts. The bank now projects average inflation to reach 1.4% in 2024, down from its previous estimate of 1.9%, and 1.2% in 2025, down from 1.6%. For 2026, the bank predicts average inflation at 1.1%.

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Analysts predict more rate cuts from the SNB in the future, with expectations for two more cuts this year. The bank’s current chairman, Thomas Jordan, is set to step down after the September meeting, which adds further uncertainty to the situation.

The global economic outlook remains uncertain, with the SNB noting “significant risks” and geopolitical tensions that could impact economic growth. Switzerland’s economic growth is expected to be modest in the coming quarters, with GDP growth estimated at around 1% this year.

Switzerland is the first advanced economy to cut interest rates following a period of high inflationary pressures exacerbated by the effects of the Covid-19 pandemic and geopolitical tensions, including Russia’s war in Ukraine. The Bank of England and Norway’s central bank also made monetary policy decisions recently, with the former expected to maintain its current policy and the latter holding rates steady at 4.5%.

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The SNB’s rate cut is a significant development that reflects the ongoing challenges facing the global economy and highlights the measures central banks are taking to support economic stability amidst uncertainty. Stay tuned for more updates on this developing story.

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