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Swiss central bank cuts interest rates for second time this year

Swiss National Bank's (SNB) Chairman of the Governing Board Thomas Jordan speaks during the 116th Ordinary General Assembly of the SNB in Bern, Switzerland, Friday, April 26,
Swiss National Bank's (SNB) Chairman of the Governing Board Thomas Jordan speaks during the 116th Ordinary General Assembly of the SNB in Bern, Switzerland, Friday, April 26, Copyright Anthony Anex/' Keystone via AP
Copyright Anthony Anex/' Keystone via AP
By Indrabati Lahiri
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The Swiss National Bank cut interest rates for a second time running in response to predictions of cooling inflation. The country’s key banking and financial services sector has been under pressure recently from the rising dominance of other financial hubs such as Hong Kong, Singapore and the US.


The Swiss National Bank announced on Thursday morning that it would be cutting interest rates to 1.25%, a further decrease of 25 basis points. This is mainly due to the central bank anticipating that although inflation did increase slightly in April, coming up to 1.4% in May, it is now expected to come down to about 1.3%  for the rest of the year, as inflationary pressures reduce. 

Furthermore, if interest rates remain constant at 1.25%, the central bank also conditionally expects inflation in 2025 to touch 1.1% and in 2026 to come down once more to 1%. 

Regarding their interest rate decision today, the Swiss National Bank said, in a press release, “The underlying inflationary pressure has decreased again compared to the previous quarter. With today’s lowering of the SNB policy rate, the SNB is able to maintain appropriate monetary conditions. 

"The SNB will continue to monitor the development of inflation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term. 

"Inflation has risen slightly since the last monetary policy assessment and stood at 1.4%. Higher inflation in rents, tourism services and oil products has contributed in particular to this increase. 

"Overall, inflation in Switzerland is currently being driven above all by higher prices for domestic services. Taking into account today’s policy rate cut, the new conditional inflation forecast is similar to that of March. Over the longer term, it is slightly below the previous forecast."

Kyle Chapman, FX markets analyst at Ballinger Group said: "The Swiss National Bank has cut its policy rate by a further 25 basis points to 1.25%, and its lower forecasts have signalled that more could be in store in the second half of the year. 

"The cut has been framed in terms of an adjustment to monetary conditions that is reliant on policymakers' forecasts. 

"Despite the forecasts conditioned on a lower interest rate, the SNB is expecting inflation to be on an even steeper downward path over the next few years. This suggests that there is still some restrictiveness to be squeezed out this year, and for me, that is a heavy signal that another rate cut is coming in September. 

"I expect the SNB to follow up with a third cut next quarter, and there is potential for a fourth in December if there is still high conviction in the restrictive level of monetary policy. The dovish outlook puts the franc in a vulnerable position over the coming quarters and could hinder any further recovery, particularly if the ECB takes its time in bringing rates down."

The country's iconic banking and financial services sector is also struggling somewhat at the moment, with the recent collapse of major Swiss investment bank Credit Suisse. Aggressive competition from other financial services hubs such as Hong Kong, the US and Singapore have also contributed significantly to this. 

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