Switzerland cuts interest rates for the second time as major economies diverge

The Swiss franc weakened in the wake of the announcement, with the euro rising 0.3% and the US dollar rising 0.5% against the Swiss currency at 8:55 a.m. London time.

Following Thursday’s decision, the SNB pegged its conditional inflation forecasts at 1.3% for 2024, 1.1% for 2025, and 1.0% for 2026. The figures assume a SNB interest rate of 1.25% over the forecast period.

Inflation in the country It settled at 1.4% in May After rising in April and is expected to reach the same level during the entire year 2024, According to the latest forecasts of the Swiss Central Bank.

The Swiss bank said it now expects economic growth of about 1% this year and about 1.5% in 2025, anticipating slight increases in unemployment and slight decreases in utilization of production capacity.

“In the medium term, economic activity should gradually improve, supported by somewhat stronger demand from abroad,” the Swiss central bank said.

In a June 14 note, analysts at Nomura described the potential cut as a “finely balanced decision” and noted that “underlying inflation momentum remains weak which is likely to increase the SNB’s confidence that inflation will converge to its midpoint.” . Inflation target.

Switzerland already has the second lowest interest rate among the G10 democracies by a wide margin, after Japan. It became the first major economy to cut interest rates in late March, with the European Central Bank following suit earlier this month, and questions are now growing about whether it will continue to cut interest rates for a third time this year.

Kyle Chapman, FX analyst at Ballinger Group, said the SNB’s inflation forecasts “suggest there are still some caps to unwind this year, and to me, that’s a strong signal that another rate cut is coming in the coming year.” September”. “I expect the SNB to follow through with a third cut next quarter, and there is a possibility of a fourth cut in December if there is still high conviction in the restrictive level of monetary policy.”

He pointed out that these expectations leave the Swiss franc in a “weak position.”

But the US Federal Reserve has not blinked yet, and market participants will be watching later in Thursday’s session to see if the Bank of England will make a move to taper, after UK inflation fell to the 2% target for the first time in nearly three years. Years.