The Swiss National Bank (SNB) cut interest rates by 25 basis points on Thursday, aligning with similar moves by the European Central Bank and the U.S. Federal Reserve. The decision lowers the policy rate to 1.00%, the lowest since early 2023, and signals the possibility of further reductions as inflation in Switzerland continues to cool sharply.
Cooling Inflation and Future Rate Cuts
The SNB’s decision, which marks the third reduction this year, was enabled by a sharp decline in inflation, which fell to 1.1% in August and has stayed within the central bank’s target range of 0-2% for 15 months. Outgoing SNB Chairman Thomas Jordan suggested more rate cuts could be on the horizon to maintain price stability, stating, “Further cuts in the SNB policy rate may become necessary in the coming quarters.”
Incoming Chairman Martin Schlegel echoed this sentiment but remained cautious, noting that while further cuts are likely, nothing is guaranteed. “It’s not unlikely that we also cut in December,” Schlegel told Reuters, emphasizing the SNB’s data-driven approach to monetary policy.
Impact on the Swiss Franc and Inflation Outlook
The SNB’s rate cut was met with a strengthening Swiss franc, which recently hit its highest level in nine years against the euro. Schlegel acknowledged the challenges this poses for Swiss exporters but noted that the rise of the franc contributed to lower inflationary pressure.
The SNB also revised its inflation forecasts sharply downwards, predicting consumer price growth of just 0.6% in the second quarter of 2027. This dovish outlook led analysts to speculate that further cuts are imminent. “The SNB is sending a very clear signal to the markets that further rate cuts are on the way,” said Charlotte de Montpellier, senior economist at ING.
Market Reactions and Expectations
The SNB’s reduction in inflation forecasts for 2025 and 2026 and the dovish tone of Thursday’s announcement suggest that the central bank may be more aggressive in cutting rates than anticipated. Karsten Junius, chief economist at J Safra Sarasin, remarked, “This is the strongest hint towards future policy decisions that the SNB has given in recent years.”
