SNB does it again and lowers the key interest rate
Published: Thursday, Jun 20th 2024, 14:10
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The Swiss National Bank (SNB) is forging ahead and lowering its key interest rate for a second time in a row. It is confident that monetary conditions will allow a further rate cut without reigniting inflation.
The so-called SNB key interest rate will be lowered by 0.25 percentage points to 1.25 percent, as the SNB announced on Thursday. The SNB had already lowered its key interest rate by a quarter of a percent in March, ahead of all other major central banks.
In the meantime, two weeks ago, the European Central Bank (ECB) also took an initial step downwards by 0.25 percentage points. According to economists, the narrowing interest rate differential with the currency area is likely to have played a role in the SNB's decision.
However, the decisive factor was probably the increasing political uncertainty in France, according to many experts. Since the announcement of new elections in the neighboring country, the Swiss franc has appreciated sharply.
Inflationary pressure falls
The underlying inflationary pressure in Switzerland has fallen again since the last monetary policy assessment in March, explained Thomas Jordan on Thursday at his second last press conference as Chairman of the SNB Governing Board.
The SNB has thus tamed inflation in Switzerland. Inflation peaked at 3.5 percent in August 2022, but returned to the targeted range of 0 to 2 percent in just ten months. The SNB had already given the go-ahead for five interest rate hikes in a row in June 2022.
Jordan is not worried by the fact that inflation in Germany has recently risen again to 1.4 percent. This is because rising residential rents have contributed around half of this increase. "This contribution should decrease again over time," he said, referring to the reference interest rate for residential rents, which has been stagnating for six months and to which landlords must align themselves.
"Reasonable" wage development in Switzerland
The monetary guardians do not see any other reasons for a resurgence in inflation. "The second-round effects are somewhat smaller than we recently assumed," said Jordan. He sees few signs of a so-called wage-price spiral.
For example, wage development in Switzerland has remained "reasonable". But there was also praise for the companies: According to the SNB chief, they have not passed on the higher costs to sales prices on a large scale.
The lower second-round effects are also reflected in the SNB's slightly lower inflation forecasts - the SNB's most important indicator for the future direction of interest rates. This remains within the target range of price stability for the entire forecast horizon.
Specifically, according to its latest forecast, the SNB expects inflation to average 1.3% in 2024. Values of 1.1% and 1.0% are expected for 2025 and 2026.
Industry facilitated
There was praise from the companies. The Swissmechanic association, which represents small and medium-sized companies in the Swiss mechanical, electrical and metalworking industries, welcomed the SNB's decision in a statement.
The interest rate cut is "an important step" towards strengthening the competitiveness of the strongly export-oriented MEM industries. This is because the strong franc is putting the industry under pressure.
"Wish fulfilled", can be said with regard to foreign exchange trading: Following the interest rate decision, the Swiss franc weakened by around half a centime against both the euro and the US dollar.
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