The Swiss National Bank (SNB) has become the first major central bank to cut interest rates after a sustained period of hikes to combat soaring inflation.
The SNB on Thursday, March 21, 2023, cut its rate by a quarter point to 1.5 percent following a Swiss tightening policy begun in June 2022.
This comes amid a flurry of activity among central banks. The Federal Reserve maintained US interest rates on Wednesday but hinted at the possibility of up to three rate cuts by year-end.
Similarly, the Bank of England and the Norwegian central bank opted to keep their key interest rates steady on Thursday, though forecasts suggest potential cuts later in the year.
Central banks globally had raised borrowing costs in recent years to curb inflation, which spiked as economies emerged from Covid-induced lockdowns and escalated following Russia’s invasion of Ukraine in February 2022.
In Switzerland, SNB chief Thomas Jordan emphasised that the decision to cut rates wasn’t driven by a desire to precede other central banks but rather by the opportune timing for the country.
This move led to a decline in the Swiss franc against both the dollar and euro, reaching multi-month lows.
According to the SNB, the easing of monetary policy was facilitated by the effective measures taken to combat inflation over the past few years. With inflation now below two percent, the SNB considers it within the range indicative of price stability.
The Swiss central bank additionally noted that global economic growth is expected to remain moderate in the coming quarters, with a further decline in inflation anticipated.
Adrian Prettejohn, Europe economist at Capital Economics, indicated that their research group anticipates the Swiss central bank to implement two additional rate cuts in 2024.
“We anticipate the SNB to reduce rates at the September and December meetings, bringing the policy rate to one percent, where we anticipate it will remain throughout 2025 and 2026.”
Highlighting potential concerns, the SNB cautioned that inflation might persist at elevated levels in certain countries, while geopolitical tensions could escalate.
“It is therefore possible that global economic activity could be weaker than anticipated,” stated the central bank.
“Our projections for Switzerland, similar to the global economy, are characterised by significant uncertainty. The primary risk lies in weaker economic performance abroad.”
Meanwhile, the Federal Reserve opted to maintain US interest rates at a 23-year high during its Wednesday meeting.
The decision reflects the Fed’s intention to “carefully assess incoming data, the evolving outlook, and the balance of risks” before considering any adjustments to its key lending rate, currently set between 5.25 percent and 5.50 percent.
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