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Swiss National Bank Lowers Policy Rate Amid Declining Inflation Pressure

Swiss National Bank Lowers Policy Rate Amid Declining Inflation Pressure

June 20, 2024

SNB Cuts Interest Rate as Underlying Inflation Decreases

June 20, 2024 - The Swiss National Bank (SNB) announced on Thursday that it has reduced its main policy rate by a quarter of a percentage point, lowering it from 1.5% to 1.25%. This decision was driven by a drop in "underlying inflationary pressure," despite increases in costs for rents, tourism services, and oil products.

The SNB's move marks its second interest rate cut this year, following a similar quarter-point reduction in March that surprised many market analysts. The new rate will take effect on Friday.

Reasons for the Rate Cut

The SNB highlighted that inflation in Switzerland is currently being driven primarily by higher prices for domestic services. Over the past months, central banks worldwide have been tightening monetary policy to combat inflation by making borrowing more expensive, thereby cooling economic activity and reducing price pressures.

"Global economic growth was solid in the first quarter of 2024," the SNB stated. "Inflation largely moved sideways over the past months, and remained above central banks’ targets in many countries. However, the underlying inflationary pressure continued to decrease slightly."

Global Context and Comparisons

The SNB noted that several other central banks have also eased monetary policy recently, following a period of tightening over the last two years. Despite this trend, the SNB cautioned that inflation could remain high in some countries, and geopolitical tensions might negatively impact economic activity worldwide.

Impact on the Swiss Economy

This latest rate cut is part of the SNB's strategy to manage inflation while supporting economic growth. By reducing the cost of borrowing, the central bank aims to stimulate economic activity and prevent deflationary pressures. The decision also reflects the SNB's assessment of the global economic environment and its potential effects on Switzerland.

In summary, the SNB's proactive approach in adjusting interest rates highlights its commitment to maintaining economic stability amidst fluctuating global conditions. As the central bank continues to monitor inflation and economic growth, further policy adjustments may be expected to ensure a balanced and robust economic outlook for Switzerland.

Reaction of the EUR CHF exchange rate:

At the moment of the decision of the Swiss National Bank, the Euro Swiss Franc exchange rate was at the lowest point since February 2024 with a EUR CHF exchange rate of 0.948175. The information about lowering the interest rate o 1.25% resulted in a rapid change of the EUR CHF exchange rate to roughly 0.954. The USD CHF exchange rate also went up from 0.884 to 0.890 as a result of this announcement.

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