The Swiss National Bank continues its interest rate cuts, pointing to lower inflation

By John Revill

ZURICH(Reuters) -The Swiss National Bank cut interest rates on Thursday, maintaining the central bank’s position as the frontrunner in the global policy easing cycle now underway, sending the Swiss franc lower and stock prices higher.

The SNB cut the policy rate by 25 basis points to 1.25%, as expected by two-thirds of analysts polled by Reuters, after a similar cut in March.

The decision was well balanced, given the recent rebound in economic growth and a break in the trend of gently declining inflation in Switzerland.

“Underlying inflationary pressures have again decreased compared to the previous quarter,” the SNB said. “The current reduction in the SNB’s policy rate will allow the SNB to maintain appropriate monetary conditions.”

“Taking into account today’s policy rate cut, the new conditional inflation forecast is similar to that of March. Over the longer term, it is slightly below the previous forecast.”

Before the decision, markets had priced in a 68% probability of a cut, and a 32% probability that rates would remain unchanged.

On Thursday, a busy day for central banks, the Bank of England will also announce its latest decision, with economists expecting interest rates to remain unchanged. The Norwegian central bank will also provide its latest update.

The Swiss franc fell slightly and stocks rose on Thursday after the SNB announced the interest rate cut.

Switzerland’s blue chip stock index rose 0.5% after little change before the announcement.

The Swiss decision came after inflation in the country remained stable at 1.4% in May, meaning price increases for each of the past eleven months are within the SNB’s 0-2% target, which it calls price stability .

Several factors underlie low price pressure in Switzerland, including an energy mix that makes the country less vulnerable to rising oil and gas costs, wage moderation and some protection against imported price inflation provided by the strong franc.

The recent decline in inflation allowed the SNB to become the first major central bank to cut interest rates in March.

Since then, the SNB has been followed by the European Central Bank, which last week cut interest rates for the first time in five years.

The central banks of Canada and Sweden have also started reversing interest rate cuts introduced to tackle the post-pandemic rise in inflation.

However, the US Federal Reserve kept interest rates stable last week and postponed the start of interest rate cuts until later this year.

The recent strengthening of the Swiss franc against the euro may have been a factor in the SNB’s decision to continue austerity.

“Markets started to worry about French debt and the upcoming elections in France, which could have become a factor for the SNB, which does not want the franc to appreciate too much,” said UBS economist Alessandro Bee, who had expected the SNB to maintain interest rates. before mowing in September.

“The potential for further rate cuts is becoming increasingly limited as we move closer to what we believe is the nominally neutral level for rates around 1%.”

(Reporting by John Revill, Editing by Dave Graham and Tomasz Janowski)

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