The Swiss National Bank (SNB) delivered a larger-than-expected interest rate cut at its December policy meeting, lowering its policy rate by 50 basis points to 0.50%.
This marks the central bank’s fifth consecutive rate reduction this year, as it battles persistent low inflation and a strong Swiss franc.
Key points from the SNB statement:
- SNB cut its policy rate by 50bps to 0.5%, exceeding market expectations of a 25bps cut
- Inflation forecast revised down, now projects 1.1% for 2024, 0.3% for 2025, and 0.8% for 2026
- GDP growth expected at around 1% for 2024 and between 1-1.5% for 2025
- Bank remains willing to be active in foreign exchange markets if necessary
- Underlying inflationary pressure has decreased again this quarter
Link to SNB December 2024 Policy Statement
The central bank noted that inflation has been lower than expected, falling from 1.1% in August to 0.7% in November. Both goods and services contributed to this decline, with inflation in Switzerland still being primarily driven by domestic services.
Under new Chairperson Martin Schlegel, the SNB appears to be taking a more aggressive approach to addressing inflation concerns and managing franc strength.
During the presser, he noted that policymakers don’t like negative interest rates but that they would be ready to implement that policy option if necessary. “When we introduced negative interest rates in 2015 it was to lower the attractiveness of the Swiss franc, and this worked,” he explained.
Link to SNB Press Conference Introductory Remarks
Market Reactions
The Swiss franc vs. Major Currencies: 5-min
Overlay of CHF vs. Major Currencies Chart by TradingView
The Swiss franc, which had been cruising slightly higher ahead of the actual SNB announcement, gapped sharply lower across the board when the central bank announced a mega 0.50% reduction.
While the initial reaction was gradually faded and the press conference also kept losses in check, CHF eventually resumed its slide against most of its counterparts, rounding up its largest losses to the yen (-0.60%) and the Canadian dollar (-0.44%) a few hours after the announcement.
Other major currencies like GBP and AUD also strengthened against the franc, gaining 0.28% and 0.29% respectively.