Taking advantage of inflation that appears to be under control, the Swiss National Bank (SNB) reduced its key rate on Thursday for the third time since the start of the year, from 1.25% to 1.00%. Further monetary easing is already anticipated by the markets.
At 1%, the new level of the key rate is identical to that at the start of 2023.
This monetary easing “confirms that our decisions in March and June were correct,” said outgoing President Thomas Jordan at a press conference in Zurich. Taking the lead over other central banks, the SNB had in fact created a surprise by reducing its key rate to 1.5% in mid-March, compared to 1.75% previously. It then reduced it by the same amount in June, to 1.25%.
>> Forum explanations:
>> Read about it: The ECB cuts rates for the second time in three months
This Thursday’s announcement is in line with the expectations of economists surveyed by the AWP agency, who expected a rate between 0.75% and 1.25%. Some experts expected a stronger cut of 50 basis points. “We are still discussing various options,” Thomas Jordan said on the subject.
Inflation under control
If the SNB was able to reduce its key rate again, it is because inflation is back on track. Showing 1.1% over one year in August, consumer prices are right in the 0% to 2% range defended by the issuing institute. And the outlook is encouraging, because inflation is now expected at 1.2% for the current year and at 0.6% and 0.7% respectively for 2025 and 2026. In June, during the last tally, the Inflation was still expected to rise from 1.3% for the current year, to 1.1% for 2025 and 1.0% for 2026.
“I do not see any deflationary risk in the short term,” stressed Thomas Jordan, adding that he had “made the appropriate monetary policy decisions to ensure that inflation remains within the range equated with price stability.”
>> Read also: Inflation in Switzerland continued to slow in March
Prevent the franc from depreciating too much
The SNB’s decision comes as part of a phase of global monetary easing. The European Central Bank (ECB) lowered its key rates by 25 basis points on September 12 and the American Federal Reserve (Fed) by 50 basis points on September 18.
>> Read: The Fed strikes a blow and lowers rates by half a point
Returning to the SNB’s decision not to follow the Fed with a reduction in the key rate of 50 basis points, John Plassard, investment specialist at the Mirabaud bank, estimated that the Swiss issuing institute wanted to “keep ‘ammunition’ for 2025. The SNB has indeed indicated that “further rate cuts may prove necessary in the coming quarters”.
By only falling 25 basis points, the SNB wanted to “make the markets understand that inflation and the economy are under control” and prevent the franc from depreciating too much, because it prevents an appreciation of inflation , he adds.
A rate of 0.5% in March 2025?
The investment director of Oddo BHF Suisse Arthur Jurus recalled that investors now anticipate a key rate of 0.75% in December and 0.50% in March. He foresees a direct effect on the real estate market, explaining that “credit conditions will be more favorable to borrowers”. The new reduction in the key rate “will fuel the continued decline in mortgage rates”. But tenants should also benefit from this decision, the rate applicable to lease contracts having to increase from 1.75% to 1.50% in December, he adds.
As for the appreciation of the franc, which handicaps exporters but limits the effects of imported inflation, it would seem that the level of intervention of the BNS on the foreign exchange markets “is now much lower”, underlined Nadia Gharbi , economist at Pictet Wealth Management.
>> Also listen to the interview with Arthur Jurus in the 12:30 p.m.
ats/friend/vic
