The Swiss National Bank has today cut its interest rate by 50 basis points, the biggest reduction in almost 10 years as it sought to stay ahead of expected cuts by other central banks and cap the rise of the Swiss franc.
The SNB reduced its policy rate from 1% to 0.5%, the lowest since November 2022.
While markets had predicted the move, more than 85% of economists polled by Reuters had expected a smaller cut of 25 basis points.
The cut is the steepest drop in Swiss borrowing costs since the SNB's emergency rate reduction in January 2015 when it suddenly quit its minimum exchange rate with the euro.
"With our easing of monetary policy today we are countering the lower inflationary pressure," the SNB's new chairman Martin Schlegel told reporters in remarks prepared for the central bank's press conference on its latest decision.
"We will continue to monitor the situation closely, and will adjust our monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term," Schlegel added.
Today's decision was the first under Schlegel, and saw an acceleration from the policy of predecessor Thomas Jordan, who oversaw three reductions of 25 basis points this year.
It was made possible by low Swiss inflation, which was 0.7% in November, and has been within the SNB's 0-2% target range, which it calls price stability, since May 2023.
Schlegel said uncertainty about future price developments was still high as the central bank forecast that Swiss inflation in 2025 would be lower than previously expected.
The European Central Bank is also expected to cut rates later today and the US Federal Reserve on December 18.
The Bank of Canada cut its main policy rate by 50 basis points yesterday.
Narrowing interest rate differentials between Switzerland and other countries increase the attractiveness of the safe-haven franc, boosting the currency.
The franc's appreciation is an additional headache for Swiss exporters, making their exports more expensive when they are already facing subdued demand in Europe and China.
"Low inflation and risks to the European economy and thus to the Swiss economy may have been major drivers for this rate cut," said UBS economist Alessandro Bee.
"Furthermore, by cutting by 50 basis points the SNB is likely to widen the interest rates differential and thereby pre-emptively counter excessive Swiss franc strength."
The SNB now expects growth of between 1% and 1.5% for 2025. It had previously predicted 1.5% for next year.
For 2024, the SNB sees Swiss prices rising by 1.1%, by 0.3% in 2025 and 0.8% in 2026, compared to its previous inflation forecasts of 1.2%, 0.6% and 0.7%, respectively.
"The SNB softened its forward guidance for possible further cuts. But with the latest move the SNB likely cemented the market expectations for lower rates," said Alexander Koch, head of macro and fixed income research at Raiffeisen.
"And if the SNB does not deliver at the coming meetings, there is ample potential for renewed franc strength."
SNB says current chances of negative interest rates are small
The Swiss National Bank could still take interest rates into negative territory, Chairman Martin Schlegel has said, although the likelihood of such a move has reduced after the central bank's latest cut in borrowing costs.
"At the current juncture we cannot exclude negative interests rates in the future," Schlegel told reporters.
"I can also say that, as discussed today, the likelihood of negativeinterest rates has become small," he said.
Schlegel, who has previously flagged negative rates a spossible move, said the SNB did not like negative rates, a policy it used for seven years until 2022.
