SNB: The Swiss National Bank makes its second rate cut this year | Financial markets

The Swiss National Bank (SNB) announced this morning that it is cutting interest rates by 25 basis points, reducing the rate from 1.5% to 1.25%. The decision, which will come into effect this Friday, returns the index to the levels of January 2023, when the largest Swiss banking entity was, together with the large European banks, in an accelerated round of rate increases to combat the inflationary spiral. then. The cut is the second to be carried out this year – in February the entity already reduced rates from 1.75% to 1.5% – and it occurs two weeks after the European Central Bank (ECB) lowered rates by 25 basis points for the first time in eight years.

The statement also highlights that if necessary the SNB would be willing to intervene in the currency market to avoid the wide fluctuations of the Swiss franc, which has clearly appreciated against the euro and the dollar in the last month, reaching close to parity with the European currency.

The SNB justifies the new cut in guiding rates by arguing that “the underlying inflationary pressure has decreased again compared to the previous quarter.” However, the entity has not missed that inflation experienced a slight rebound in May, standing at 1.4% (40 basis points more than in March), still half of its peak in August 2022, when the Index Swiss General Price Index (CPI) reached 3.5%. Zurich officials explain that the increase is due to the rise in the cost of rentals, tourist services and oil products, although they consider that the increase in prices of internal services is the element that has had the most impact.

Although it does not give clues about its next move, the fact that it was one of the first central banks to lead the rate reduction, which started in March, suggests that the entity has detached itself from the strategy of its counterparts, analysts share. from Bloomberg. The US Federal Reserve has just announced that it will be cautious with the cuts projected for this year and the ECB is reluctant to take action again soon. The SNB assures that it will continue to closely monitor inflation, “adjusting its policy if necessary to ensure that inflation remains within the range of price stability in the medium term.”

After the cut, the SNB’s new inflation forecast for Switzerland this year stands at 1.3%, 1.1% for 2025 and drops to 1% in 2026, as long as the official interest rate remains at 1.25%, the entity warns. These forecasts are much more rosy than those of the ECB, which expects the average price increase in the euro zone to moderate this year to 2.5% to drop four more tenths in 2025.

The bank chaired by Thomas Jordan is confident that the world economy will recover in the medium term, although it does not rule out that the increase in geopolitical tensions will hinder this objective. At the same time, it determines that Switzerland’s growth will remain moderate in the coming months, with GDP growth close to 1% this year and 1.5% by 2025.

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