SNB cuts key interest rate surprisingly significantly
Published: Thursday, Dec 12th 2024, 11:30
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The Swiss National Bank (SNB) has lowered the key interest rate by a surprisingly significant 50 basis points to 0.50%. And even with the lowered key interest rate, it expects inflation to be lower in 2025. Further interest rate cuts are therefore possible.
According to the SNB, price stability, i.e. inflation of 0 to a maximum of 2 percent, is guaranteed with the key interest rate lowered to 0.50 percent. For 2025, inflation is only expected to reach 0.3 percent, compared to 0.6 percent in September - with a key interest rate of 1.00 percent. The forecast for 2026 is now 0.8 percent instead of 0.7 percent.
According to the SNB communiqué issued on Thursday, inflation has once again been lower than expected since the last monetary policy assessment. The lowered forecast for 2025 primarily reflects the lower than expected inflation in oil products and food.
Lower inflationary pressure
"With today's easing of monetary policy, we are counteracting the lower inflationary pressure," said SNB Chairman Martin Schlegel according to the speech text. The SNB's forecasts are always based on the assumption that the SNB policy rate will remain at the current interest rate level throughout the entire forecast period.
Relatively low inflation forecasts therefore also increase the scope for the monetary authorities to cut interest rates further. Without today's interest rate cut, the conditional inflation forecast would be even lower, the monetary authorities emphasized.
"We will continue to monitor the situation closely and adjust monetary policy if necessary to ensure that inflation remains within the price stability range in the medium term," Schlegel continued. Uncertainty regarding the development of inflation remains high, with the development of the Swiss franc remaining an important factor.
And the new SNB Chairman emphasized: "Interest rate cuts remain our main instrument if monetary policy needs to be loosened further." At the same time, however, the SNB remains prepared to intervene in the foreign exchange market if necessary.
Slightly lower growth forecast
The SNB is sticking to its previous assessment of economic growth for the current year. It continues to forecast growth in gross domestic product (GDP) of around 1%. For 2025, it still expects growth of between 1 and 1.5 percent. In September, the forecast was still around 1.5 percent.
The downward revision is justified by the only moderate foreign economy. According to the SNB, unemployment should continue to rise slightly in this environment, while utilization of production capacity should fall somewhat.
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