The Swiss National Bank announced a surprise move to trim its key interest rate, becoming the first major financial center to do so in recent months. The rate cut of a quarter of a percentage point, down to 1.5%, will take effect starting Friday. Outgoing SNB chairman credited the central bank's successful efforts in curbing inflation in Switzerland as the reason behind this decision.
With inflation now below 2% for several months, the SNB sees this as a sign of price stability. The central bank's forecast indicates that inflation is likely to remain within this range in the coming years. This move had an immediate impact on the Swiss franc, which depreciated against the euro, trading at 1.02 euros compared to 1.03 euros the previous day. Earlier this year, the Swiss currency had reached record highs against the euro, surpassing 1.07 euros.
The SNB also took into consideration the real appreciation of the franc over the past year and highlighted how the rate cut would support economic activity. This decision follows signals from the U.S. Federal Reserve officials about potential rate cuts later this year, despite maintaining the current benchmark rate for the fifth consecutive time. The Bank of England is also expected to show a similar trend in easing borrowing costs while keeping its main interest rate steady at a 16-year high.
Analysts from ING bank noted that the Swiss National Bank's move makes it the first major central bank in the developed world to cut rates in this cycle. They anticipate further rate cuts in June and September, emphasizing the SNB's reputation for making unexpected decisions.
