Swiss National Bank’s Unexpected 25 Basis Points Interest Rate Reduction Rocks Markets

In a surprising move, the Swiss National Bank (SNB) has reduced its main interest rate by 25 basis points to 1.50%, diverging from the widely held expectation of maintaining rates at 1.75%.

This unexpected decision positions the SNB as the first major central bank to initiate a loosening of monetary policy, with the aim of reining in inflation. It marks the SNB’s inaugural rate cut in nine years, causing a notable depreciation of the Swiss franc across various markets in immediate response to the central bank’s announcement.

The decision to lower rates comes on the heels of Swiss inflation registering at 1.2% in February, marking the ninth consecutive month where inflation has remained within the SNB’s target range of 0%-2%, indicative of price stability.

The central bank justifies its move to ease monetary policy by citing the effectiveness of its efforts in combating inflation over the past two and a half years. With inflation now back within the target range, and expected to stay there in the coming years, the SNB deems it appropriate to begin this adjustment.

Moreover, the SNB anticipates that the pursuit of price stability alongside lower interest rates will inject fresh momentum into economic activity, providing a boost for the Swiss economy.