This is how the significantly lower key interest rate affects your life

Key interest rate cut: That’s what it’s all about

The key interest rate continues to fall: the Swiss National Bank (SNB) immediately lowered it significantly by 50 basis points; it is now at 0.5 percent. “Once again the SNB is surprising,” says Philipp Burckhardt. Upon request, the fixed income strategist and portfolio manager at Bank Lombard Odier IM assesses the consequences of the interest rate decision for readers.

A larger interest rate cut than “just” 25 basis points was priced into the market, says Burckhardt – but the vast majority of analysts expected the smaller step down by 0.25 percent. The fact that the SNB has now presented a reduction to 0.5 percent signals a certain urgency and is due to a combination of several factors.

“Above all, inflation should be mentioned here, which is below the SNB forecast and its target value,” says Burckhardt. Lombard Odier also expects further deflationary factors for the coming year, such as falling energy prices or a lower reference interest rate, which should have an impact on rents in the new year.

It is also possible that the SNB wants to send a clear signal regarding the currency, namely that it will continue to not tolerate any appreciation in order to put a stop to possible speculation at an early stage.

“We consider a key interest rate of 0.5 percent to be slightly expansionary,” says Burckhardt – especially if you view the interest rate cut in the context of the European Central Bank and the US Federal Reserve, both of which are still in restrictive territory. This also increases the likelihood that the SNB will again increasingly use the monetary policy instrument of foreign exchange market interventions.

For savers who rely primarily on interest, this strategy brings declining income, says Burckhardt. For tenants, the reference interest rate was maintained at a relatively low level in December, but at least one further reduction is still to be expected in 2025. The tenants should therefore be able to benefit from better conditions in the medium term.

“For mortgage interest rates, the interest rate cut means that the variable Saron mortgages will become cheaper,” says Burckhardt. Today’s decision also gives fixed interest rates a further downward impulse.

Since a smaller key interest rate cut is priced into the market, this will probably lead to a weaker franc in the short term. This means that shopping abroad will become more expensive again. The larger than expected interest rate hike has a stimulating and supportive effect on the Swiss economy.

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