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The Swiss National Bank has followed in the footsteps of the European Central bank and the U.S. Federal Reserve by lowering Interest rates by 25 basis points on Thursday. This move comes as Inflation in Switzerland cools significantly, with the SNB cutting its policy rate to 1.00%, the lowest level since early 2023. This marks the third rate reduction this year as the Central bank adjusts its measures to combat Inflation.
The decision, made during the final monetary policy meeting of SNB Chairman Thomas Jordan’s 12-year tenure, was driven by the moderation of price rises in Switzerland, which have been within the Central bank‘s 0-2% target range for the last 15 months. The SNB is open to further rate cuts, with Jordan stating that additional reductions may be necessary in the coming quarters to maintain price stability over the medium term.
Jordan’s successor, Martin Schlegel, indicated that given the likelihood of further Inflation decreases, more rate cuts are probable. However, he emphasized that the SNB does not provide forward guidance and does not pre-commit to specific actions. The bank’s success in controlling Inflation has positioned it as a leading Central bank in reducing borrowing costs, with rate cuts in March and June preceding this latest move.
The recent decision to lower rates was influenced by weakened inflationary pressure in Switzerland, leading the SNB to revise its Inflation forecasts downwards for the next few years. The strengthening Swiss franc has contributed to low Inflation, posing challenges for Swiss exporters facing weak demand from abroad. Following the rate cut announcement, the franc appreciated further, reaching its highest level against the euro in nine years.
Economic experts view the SNB’s rate reduction as a proactive response to evolving market conditions, with a more dovish outlook than anticipated. This shift in policy signals potential future rate cuts aimed at weakening the Swiss franc. The SNB adjusted its Inflation forecasts for the upcoming years, with Inflation expected to average 0.6% in 2025 and 0.7% in 2027, reinforcing expectations of additional rate cuts to come.
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Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.
