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Economists’ reactions to SNB interest rate cut

Updated at 21 Mar 2024 1:00 pm

The Swiss National Bank (SNB) has - surprisingly for many - lowered its key interest rate by 25 basis points to 1.50 percent, once again moving ahead of foreign central banks. Below are comments from economists:

VP BANK, Thomas Gitzel: Wow, the SNB knows how to surprise. The clear majority of economists expected the key interest rate to remain unchanged. Presumably, the strong franc was a thorn in the side of the currency guardians. A weaker franc helps Swiss industry, which is strong in exports.

RAIFFEISEN, Fredy Hasenmaile: As the price rises at the beginning of the year were less pronounced than the SNB had expected, there is little concern about inflation. Instead, the persistently strong franc has increased concerns about negative effects on the export industry. The SNB has therefore used its room for maneuver and obviously wants to help mitigate the strength of the franc with an early interest rate cut and put a stop to any renewed appreciation trends in advance.

VONTOBEL, Reto Cueni: The SNB is once again proving its independence and is the first of the major central banks to start cutting interest rates. In doing so, it is also starting to cut interest rates again before the European Central Bank, just as it did before the ECB in June 2022 with its interest rate hike. This should also reduce the upward pressure on the Swiss franc, especially against the euro.

JULIUS BÄR, David Kohl: The SNB is taking advantage of the current economic situation in Switzerland and taking action. The early achievement of price stability, moderate growth and increasing international competitive pressure due to a strong currency are plausible reasons for the interest rate cut. Waiting for other central banks to act was rightly seen as having no added value.

SAFRA SARASIN, Karsten Junius: It is a good decision by the SNB to cut interest rates today and not wait for the Fed or the ECB. The SNB is right to focus on the Swiss data. The key difference to other countries is that wage pressure is much lower in Switzerland, so there is very little domestic price pressure. The strong real appreciation of the Swiss franc and the difficult situation of the Swiss export sector were a further argument for the interest rate cut and for a weaker Swiss franc in the future. A further interest rate cut in June is likely.

LUKB, Brian Mandt: The SNB is always good for a surprise. By cutting interest rates, the SNB is also taking into account the fact that the Swiss franc has appreciated in real terms in recent months, which is having a negative impact on the economy. By cutting interest rates, it is therefore countering the real appreciation. At the same time, it is improving the financing conditions for investments.

Swiss Life, Marc Brütsch: The timing of the SNB's first interest rate cut comes as a surprise. With this move, the SNB is finally getting out of the ECB's sidecar. The interest rate cut can be justified by the fact that inflation in Switzerland is back within the SNB's target range. The SNB's decision today makes a further increase in the mortgage reference interest rate somewhat less likely, which in turn could have implications for future rent trends. We currently expect the SNB to cut interest rates further to 1.25% in 2024 - the value we would assume to be the so-called "neutral rate".

MIGROS BANK, Valentino Guggia: We consider the interest rate decision to be a courageous and unnecessary step in the current environment. At 1.75 percent, the key interest rate was by no means restrictive, but already in neutral territory. Therefore, the potential for further interest rate cuts is now even more limited.

ZKB, David Marmet: While the key interest rates of other major central banks are currently still in the restrictive range, the new Swiss interest rate level of 1.5% is neither slowing down nor stimulating economic activity. From today's perspective, there is no immediate need to cut interest rates. We do not expect the SNB to announce any change in interest rates at its next monetary policy assessment in June.

UBS, Alessandro Bee: Inflation in Switzerland has recently fallen more sharply than expected at the beginning of the year. This suggests that second-round effects are not a major issue in Switzerland, unlike in other economies, and this allowed the SNB to cut key interest rates as early as March. However, there would also have been good reasons to wait with the first interest rate cuts: Firstly, it is still too early to tick off the question of second-round effects. Secondly, it is not yet clear whether and when the other central banks will decide to cut interest rates. And thirdly, the Swiss franc has lost value since the beginning of the year. In its assessment, the SNB has given more weight to the low inflation figures than to the reasons.

VALIANT, Thomas Gangi: Even though a key interest rate cut was not completely ruled out until the very end, the SNB surprised us once again today and is the first major central bank to start the cycle of interest rate cuts. The abbreviation SNB seems to stand for "Surprise National Bank".

©Keystone/SDA

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