Switzerland becomes first major economy to cut interest rates in surprise move - Business News: Latest Share Market , Economy & Finance News | Trendmergers


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Switzerland becomes first major economy to cut interest rates in surprise move


The Swiss National Bank on Thursday surprised the market with a decision to lower its main policy rate by 0.25 percentage points to 1.5%, saying national inflation is likely to stay below 2% for the foreseeable future.

Economists polled by Reuters had expected the Swiss central bank to hold rates at 1.75%.

“For some months now, inflation has been back below 2% and thus in the range the SNB equates with price stability. According to the new forecast, inflation is also likely to remain in this range over the next few years,” the bank said. Swiss inflation continued to fall in February, hitting 1.2%.

The SNB also reduced its annual inflation forecasts. The bank now sees average inflation reaching 1.4% in 2024, down from its 1.9% estimate in December, and 1.2% for 2025, trimmed from the previous 1.6% estimate. Its first forecast for 2026 puts average inflation at 1.1% over the period.

Following the announcement, analysts at Capital Economics said they expect two more SNB rate cuts over the course of this year, “with the Bank sounding more dovish and inflation likely to undershoot its forecasts.”

“We think inflation will come in even lower than the new SNB forecasts imply and remain around the current level of 1.2% before falling to below 1.0% next year. Accordingly, we forecast the SNB to cut rates at the September and December meetings taking the policy rate to 1%, where we think it will remain throughout 2025 and 2026,” Capital Economics analysts said in a note.

The September meeting is likely to be the last under the stewardship of SNB Chairman Thomas Jordan, who will step down at the end of that month after 12 years at the helm.

The SNB said Swiss economic growth is “likely to remain modest in the coming quarters,” with the GDP poised to expand by roughly 1% this year.

“Our forecast for Switzerland, as for the global economy, is subject to significant uncertainty. The main risk is weaker economic activity abroad. Momentum on the mortgage and real estate markets has weakened noticeably in recent quarters,” the SNB said. “However, the vulnerabilities in these markets remain.”

On a macro level, the SNB flagged “moderate” global economic growth in the coming quarters, along with likely falls in inflation partly thanks to restrictive monetary policy strategies. It nevertheless acknowledged “significant risks” and geopolitical tensions that could cloud the international economic horizon.

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