In a strategic move to address the tightening inflationary landscape, the Swiss National Bank (SNB) has unexpectedly slashed its benchmark interest rate by 50 basis points, significantly more than the market-predicted quarter-point reduction. This decision aims to mitigate the strength of the Swiss franc.
During Martin Schlegel's inaugural policy meeting as chairman, the SNB adjusted the policy rate, bringing it down from 1.00 percent to 0.50 percent, effective December 13. Notably, this marks the fourth rate cut by the bank this year.
The SNB has announced that banks' sight deposits at the central bank will earn interest at the SNB policy rate up to a specific threshold, with any excess deposits being remunerated at 0 percent. The bank emphasized the further decline in underlying inflationary pressures and expressed its commitment to closely monitoring economic conditions. It remains ready to adjust its policies to maintain medium-term price stability if necessary.
Furthermore, the SNB has affirmed its readiness to engage in the foreign exchange market as needed but refrained from commenting on the current valuation of the franc.
The SNB has revised its inflation outlook, reducing its 2024 projection to 1.1 percent from a previous estimate of 1.2 percent. The forecast for 2025 has been lowered to 0.3 percent, down from 0.6 percent. In contrast, it has marginally increased its inflation projection for 2026 to 0.8 percent from 0.7 percent.
Growth projections remain modest, with the SNB anticipating approximately 1 percent economic expansion for the current year. Although a slight uptick in growth is expected next year, it will be tempered by global economic conditions. The bank projects growth between 1 percent and 1.5 percent next year, a revision from the earlier estimate of around 1.5 percent.
According to Adrian Prettejohn, an economist at Capital Economics, the latest policy statement suggests this may be the concluding rate cut in the current cycle, as any mention of further reductions was omitted. However, Prettejohn predicts at least one additional rate cut next year, as policymakers might have to revise their inflation expectations downwards over the forecast horizon.
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