Antonio Hernández
The Swiss National Bank (SNB) caught markets off guard on Thursday as it announced a reduction in its main policy rate by 0.25 percentage points to 1.5%. This decision comes amidst expectations of sustained national inflation below the 2% mark in the foreseeable future.
Contrary to the anticipation of economists surveyed by Reuters, who foresaw the SNB maintaining rates at 1.75%, the central bank justified its move citing a persistently subdued inflationary environment. In its statement, the SNB emphasized that inflation has lingered below the 2% threshold for several months, aligning with its definition of price stability. Recent data revealed Swiss inflation dipping to 1.2% in February.
Furthermore, the SNB revised down its projections for annual inflation, with estimates now pegged at 1.4% for 2024 and 1.2% for 2025, down from earlier forecasts of 1.9% and 1.6%, respectively. For 2026, the SNB’s initial forecast indicates average inflation at 1.1%.
In response to the announcement, analysts at Capital Economics predicted two additional rate cuts by the SNB within the year, citing a more dovish tone from the bank and the likelihood of inflation falling short of forecasts.
The impending departure of SNB Chairman Thomas Jordan after 12 years adds further intrigue to the central bank’s policy outlook. Against a backdrop of modest economic growth, with GDP expected to expand by around 1% in 2024, the SNB remains vigilant amid uncertainties, particularly concerning global economic dynamics and geopolitical tensions.
In a televised interview with CNBC’s Silvia Amaro, Jordan noted the improved inflation outlook as a factor enabling rate adjustments but refrained from committing to a specific trajectory of cuts. He underscored the SNB’s readiness to intervene in foreign exchange markets if necessary to safeguard the Swiss franc, emphasizing the bank’s commitment to maintaining appropriate monetary conditions.
While Jordan avoided speculating on potential responses from other central banks, he expressed optimism about the broader benefits of global price stability, downplaying concerns over interest rate differentials and their impact on the Swiss economy.
SNB’s unexpected rate cut reflects its proactive stance in navigating economic challenges, with a keen eye on inflation dynamics and a commitment to ensuring stability in currency markets.
Following the Swiss National Bank’s rate adjustment, attention now turns to other major central banks’ monetary policy stances. The U.S. Federal Reserve, in its March meeting held on Wednesday, opted to maintain interest rates at their current levels and reaffirmed its projection of three rate cuts for 2024.
Meanwhile, the European Central Bank has maintained its policy unchanged, with indications from officials suggesting a potential rate cut deliberation in June, contingent upon data trends.
