– Political uncertainty in Europe pushes the SNB to cut rates
The Swiss National Bank announced this Thursday a second consecutive cut in its key rate after that of March. A response to the sudden appreciation of the franc, in a context of political uncertainty post-European elections, according to Nikolay Markov, analyst at Pictet Asset Management.
Published today at 10:29 a.m.
DR
Further rate cuts are expected, according to Nikolay Markov, economist at Pictet
Subscribe now and enjoy the audio playback feature.
BotTalk
The decision was expected given the recent appreciation of the franc, to 0.95 francs per euro, compared to 0.99 10 days ago. The Swiss National Bank announced this Thursday the lowering of its key rate to 1.25%, the second consecutive reduction after that of March.
A response to the ECB’s rate cut at the beginning of June? Nikolay Markov, economist at Pictet asset management, believes that “the rate differential matters less than investor sentiment.” Which dominant feeling is uncertainty in the post-European elections context. “We have the rise of the far right everywhere and early legislative elections in France.” The key is the possibility of seeing the extreme right or the extreme left in business. “We are talking about very significant public spending programs, which would deteriorate French debt, already on an unsustainable trajectory.”
Nikolay Markov sees the sudden appreciation of the franc as a response to this uncertainty. “The Swiss franc fully plays its role as a refuge. Non-residents are tempted to sell the euro and buy the franc.” Especially since, he recalls, the international geopolitical context remains particularly uncertain, in the Middle East and in Ukraine, “with the risk of direct conflict with Russia.”
Further rate cuts in sight
In its press release, the Swiss National Bank recalls that this reduction is made possible by the good health of the Swiss economy. “The macro fundamentals are excellent,” analyzes Nikolay Markov, who recalls that “with a positive current account, Switzerland is a net creditor. Inflation at 1.4% is completely under control.” The decision should make it possible to continue easing the mortgage market. “There was an over-reaction with the rise in mortgage rates to 3% in spring 2023. We could find rates at 1.5% at 10 years, or half.
The SNB leaves the door open to further rate cuts in the future. Nikolay Markov expects successive cuts “to below the neutral rate, below 1% by mid-2025.” Next announcement at the end of September.
“The best economic news”
Do you want to stay connected to trends in the Swiss and global economy, follow the women and men who are inventing the world of tomorrow and better understand the challenges of these questions? Subscribe to our newsletter now.
Other newsletters
To log in
Joan Plancade is an economic and investigative journalist for Bilan, a critical observer of the Swiss and international tech scene. He is interested in fundamental trends that are reshaping the economy and society. More informations
Did you find an error? Please report it to us.
