Key points
- Surprise rate cut sends franc lower, boosts equities
- Lowered inflation forecast allow bank to cut rate
- Chairman gives no guidance on future moves
- Rate cut was first by SNB since 2015
Switzerland today suddenly lowered its reference interest rate, becoming the first developed economy to do so. On March 21, the Swiss Central Bank (SNB) announced a reduction in the reference interest rate by 25 basis points (0.25%), to 1.5%. The reason is that inflation in this country is forecast to remain below 2% in the near future. Swiss inflation in February was 1.2%. This is the 9th consecutive month this figure has been within the SNB's target range of 0-2%.
"In the past few months, inflation has dropped below 2%. SNB believes that prices have stabilized. According to the latest forecast, inflation is likely to remain in this area in the next few years," the agency said in the announcement. newspaper.
Switzerland is the first advanced economy in the world to reduce interest rates, after a period of massive interest rate increases to cope with global inflation. Covid-19 and the war between Russia and Ukraine have caused inflation to rise around the world in the past few years. The Swiss National Bank provides no forward guidance on future rate decisions but will monitor inflation forecasts, suggesting potential adjustments to monetary policy. The move contrasts with central bank actions globally, with varied approaches to monetary policy adjustments in response to inflation concerns
Norway’s central bank refused to change, holding rates steady at 4.5%. Later in the session, the Bank of England also left its rates unchanged at 5.25%. The U.S. Federal Reserve on Wednesday held rates steady following its March meeting and reiterated its expectations for three rate cuts in 2024. The European Central Bank has also been keeping policy unchanged.
However, this information also caused the price of the Swiss franc to plummet compared to the USD and euro. Currently, the price of this currency is at its lowest level in 8 months compared to the euro.
Link: Swiss central bank cuts rates in surprise move, getting ahead of global peers
I think this bodes well for the world economy as a whole. This is a major indicator of what seems to be coming. While the US and England have maintained their rates, many countries are currently happy with the current price levels. I'm interested to see how other countries will react in the coming months.
ReplyDeleteI think it's great that they are lowering interest rates. It means that from a consumer standpoint, people are going to consume more which increases the money circulation in an economy. After reading this article it made me think of what other markets could be impacted by a lower interest rate. The most prominant one is the hosuing sector and how I expect more people to buy homes as Switzerland has cut the interest rates.
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