Switzerland becomes first major economy to cut interest rates in surprise move

The Swiss National Bank has surprised experts by cutting its interest rates by 0.25% to 1.5%, making Switzerland the first major economy to reduce rates amid ongoing inflation concerns.

The bank justified the move by noting that Switzerland’s inflation has fallen below the desired level of 2% and is expected to remain low in the foreseeable future.

The bank also lowered its inflation forecasts for the coming years.

Analysts anticipate two additional rate cuts by the SNB this year, as inflation is projected to fall even lower than the bank’s forecasts.

However, the bank’s chairman, Thomas Jordan, declined to confirm these projections.

Despite the rate cut, the SNB emphasized that it remains vigilant against inflation and is prepared to intervene in the currency market if necessary to maintain monetary stability.

The bank described the Swiss franc as “highly valued” and expressed concerns about vulnerabilities in the mortgage and real estate markets.

Globally, economic growth is expected to be moderate, with inflation declining due to restrictive monetary policies.

However, geopolitical tensions pose significant risks to the outlook.

Jordan emphasized the importance of liquidity in the Swiss banking sector and noted ongoing discussions between banks and the SNB to ensure sufficient collateral is available in emergency situations.

The Swiss rate cut contrasts with other central banks’ recent decisions, including the Norwegian central bank’s decision to hold rates steady and the U.S. Federal Reserve’s decision to pause its rate increase cycle for the time being.

The European Central Bank has also maintained unchanged rates, but has indicated a possible rate cut in June, subject to economic data.