Switzerland Cuts Key Interest Rate Amid Mixed Sentiment on Global Monetary Policy

The Swiss National Bank (SNB) has reduced its key interest rate by 25 basis points to 1.25%, aligning with expectations as global sentiment towards monetary policy easing remains uncertain. A Reuters poll of economists had predicted a 25-basis-point cut to 1.25%, with the majority anticipating this decision by the SNB.

Switzerland’s inflation rate held steady at 1.4% in May following an increase in April, with forecasts suggesting this level will be maintained throughout 2024. The SNB projects the country’s GDP, adjusted for sporting events, to reach 1.2% this year, benefiting from exports despite challenges such as low industrial production capacity utilization and high financing costs that may dampen investment activity.

Analysts at Nomura characterized the rate cut decision as finely balanced, noting the weak underlying inflation momentum. This is expected to bolster the SNB’s confidence in achieving its inflation target midpoint over time.

Switzerland currently maintains one of the lowest interest rates among the Group of Ten nations, trailing closely behind Japan. The SNB’s move follows earlier rate cuts in March, with the European Central Bank also adjusting rates in line.

While the U.S. Federal Reserve has not indicated a change in policy, market observers are awaiting the Bank of England’s decision amidst easing UK inflation figures reaching the 2% target for the first time in nearly three years.