The SNB lowered the interest rate by 50 basis points, the biggest reduction in almost a decade. By Reuters

By John Revill

BERN (Reuters) – The Swiss National Bank cut its interest rate by 50 basis points on Thursday, the biggest cut in nearly 10 years, as it sought to stay ahead of expected cuts by other central banks and limit the Swiss franc’s rise.

The SNB cut the benchmark rate from 1.0% to 0.5%, the lowest rate since November 2022.

Although markets had anticipated the move, more than 85 percent of economists polled by Reuters had expected a smaller drop of 25 basis points.

It is the biggest drop in borrowing costs since the SNB’s extraordinary rate cut in January 2015 when it suddenly abandoned its minimum exchange rate against the euro.

“Underlying inflationary pressure eased again this quarter.” Today’s easing of the SNB’s monetary policy takes this development into account,” the SNB announced.

“The SNB will continue to closely monitor the situation and adjust its monetary policy if necessary to ensure that inflation remains within a range consistent with price stability in the medium term.”

Thursday’s decision was the first under new SNB President Martin Schlegel, and saw an acceleration from the policy of predecessor Thomas Jordan, who oversaw three 25-basis-point cuts this year.

This was made possible by weak Swiss inflation, which in November was 0.7 percent, and as of May 2023, it is within the SNB’s target range of 0-2 percent, which it calls price stability.

The European Central Bank is also expected to cut rates later on Thursday, and the US Federal Reserve on December 18.

The Bank of Canada cut its key benchmark interest rate by 50 basis points on Wednesday.

Narrowing interest rate differentials between Switzerland and other countries increase the appeal of the haven franc, boosting the currency.

The appreciation of the franc is an additional headache for Swiss exporters, making their exports more expensive when they already face reduced demand in Europe and China.

“Low inflation and risks to the European economy, and thus to Switzerland, may have been the main drivers of this rate cut,” said UBS economist Alessandro Bi.

“Furthermore, by cutting by 50 basis points, the SNB is likely to widen the interest rate differential and thus preemptively counteract the excessive strength of the Swiss franc.”

The SNB now expects growth between 1% and 1.5% for 2025. He previously forecast 1.5% for next year.

The central bank expects inflation to remain within the target range. For 2024, the SNB forecasts that Swiss prices will rise by 1.1%, by 0.3% in 2025 and 0.8% in 2026.

This compares with the previous inflation forecast of 1.2% this year, 0.6% in 2025 and 0.7% in 2026.