Switzerland cuts interest rates again

20th Jun 2024 09:45

(Sharecast News) - The Swiss National Bank cut its key rate on Thursday to 1.25% from 1.5%.

"Inflation has risen slightly since the last monetary policy assessment, and stood at 1.4% in May," it said in a statement.

"Higher inflation in rents, tourism services and oil products has contributed in particular to this increase. Overall, inflation in Switzerland is currently being driven above all by higher prices for domestic services."

In March, Switzerland became the first major economy to cut rates.

The SNB expects inflation at 1.3% in 2024, 1.1% in 2025 and 1% in 2026.

"The forecast is based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon," it said. "Without today's rate cut, the forecast would have been lower."

Capital Economics said the decision by the SNB was correctly anticipated by two thirds of economists surveyed by Reuters and that it was in the minority expecting a hold.

"In our view, the SNB is unlikely to cut rates again this year as inflationary pressures remain quite sticky," said Europe economist Adrian Prettejohn.

"Aside from the headline decision, the SNB also slightly lowered its forecast for the inflation rate in 2025 and 2026. However, this forecast revision is very small and does not seem to reflect a significant change of view about the outlook.

"Meanwhile, policymakers repeated that they are willing to intervene in either direction in the foreign exchange market. This is in line with our expectations, whereas some analysts had thought the SNB would indicate they would sell FX reserves to support the franc. The combination of the rate cut and neutral stance on FX interventions sent the franc down 0.5% against the dollar immediately after the announcement."

Looking ahead, he said Capital Economics thinks the SNB will not cut rates again this year.

"We are now no longer confident that underlying inflationary pressures are abating because labour compensation is growing at a strong rate and services inflation remains very sticky," he said.