Double interest rate move – What does the SNB’s big interest rate move mean for Switzerland? -News

The monetary authorities are surprisingly lowering the key interest rate today by 0.5 percentage points and are thus rushing towards zero interest rates.

The decision:
The fourth interest rate cut this year was surprising in its clarity. The SNB announced early on that inflation would fall sharply and cut its key interest rate in the spring before the other central banks. The fact that inflation is falling so quickly was also unexpected for the SNB. This is shown by the fact that it has recently had to continually revise its inflation forecast downwards. With today’s decision, the new National Bank President Martin Schlegel is going on the offensive: The aggressive interest rate move is intended to stimulate the economy and prevent a return to negative inflation. It could also be a signal that the SNB will not tolerate any further appreciation of the Swiss franc.

The specter of negative interest rates:
Negative inflation or deflation could also bring back the dreaded negative interest rates. Switzerland left this behind in autumn 2022 – after more than 8 years of negative interest rates. Nobody wants to go back there anymore, not even the National Bank President, as he recently said. At the same time, he said, negative interest rates would continue to be part of the SNB’s toolbox. The significant interest rate move today

is intended to reduce the risk that this remedy will not have to be resorted to again. But it also reduces the monetary authorities’ scope for future steps.

A Christmas present for owners and tenants:
Today’s SNB decision is “good news” for homeowners and for everyone who wants to become one: the sharp reduction in key interest rates makes variable Saron mortgages in particular cheaper. The effect is likely to be significantly smaller for slower fixed-rate mortgages because interest rate cuts are already priced in. Tenants could also benefit: after the reference interest rate relevant to the rent level was barely maintained in December, it is now more likely to fall in March – and with it the rents again. Private households, on the other hand, have to prepare for even lower savings interest rates.

Some breathing room for the export industry:
Falling key interest rates also weaken the Swiss franc against foreign currencies. This takes pressure off Swiss export companies as their product prices become more competitive again. The strong franc has recently taken its toll on companies; many SMEs have reached a pain threshold, writes the Swiss Mechanic Association today. The export industry is helped by the fact that the European Central Bank is currently reducing the key interest rate less than the SNB. Your interest rate step is only 0.25 percentage points. So the interest rate difference increases. This makes the franc less attractive from an interest rate perspective and devalues ​​it compared to the euro.

Switzerland started the current year with a key interest rate of 1.75 percent. After today’s giant step, this is still 0.5 percent. And it’s probably not over yet: Markets and economists expect the National Bank to further reduce interest rates – to zero percent by the end of 2025 at the latest.