Switzerland makes second interest rate cut as major economies diverge on monetary policy easing

The Swiss National Bank has trimmed its key interest rate by 25 basis points to 1.25%, continuing cuts at a time when sentiment over monetary policy easing remains mixed among major economies, Report informs referring to CNBC.

Two-thirds of economists polled by Reuters had anticipated the SNB would decide in favor of a 25-basis-point-cut to 1.25%.

The Swiss franc weakened in the wake of the announcement, with the Euro gaining 0.3% and the U.S. dollar up 0.5% against the Swiss currency at 8:55 a.m. London time.

Following the Thursday decision, the Swiss central bank pegged its conditional forecast for inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026. The figures assume an SNB interest rate of 1.25% over the prediction period.

The country’s inflation flatlined at 1.4% in May after a bump up in April and is expected to average the same level across full year 2024, according to the SNB’s latest projections.

The Swiss bank said it now anticipates economic growth of around 1% this year and around 1.5% in 2025, anticipating slight increases in unemployment and small declines in the utilization of production capacity.

“Over the medium term, economic activity should improve gradually, supported by somewhat stronger demand from abroad,” the SNB said.

In a June 14 note, analysts at Nomura had characterized a likely cut as a “finely balanced decision” and signaled that “underlying inflation momentum has remained weak which is likely to increase the SNB’s confidence that inflation will converge to the mid-point of its inflation target.”

Switzerland already has the second-lowest interest rate of the Group of Ten democracies by a wide margin, following Japan. It became the first major economy to cut interest rates back in late March and was earlier this month followed by the European Central Bank, and questions are now mounting over whether it will proceed with a third rate cut this year.