Swiss National Bank Slashes Interest Rates for Third Time in 2023

The Swiss National Bank (SNB) reduced its interest rates by 25 basis points, marking its third cut this year. Following similar actions by the European Central Bank and U.S. Federal Reserve, the SNB's decision lowered policy rates to 1.00%, with potential for more cuts. The move aims to address inflationary pressures and challenges facing exporters due to a strong Swiss franc.

The Swiss National Bank cut interest rates by 25 basis points on Thursday, marking its third reduction this year. This move aligns with actions taken by the European Central Bank and U.S. Federal Reserve to reduce borrowing costs. The SNB's policy rate now stands at 1.00%, the lowest level since early 2023, meeting the expectations of 30 out of 32 analysts in a Reuters poll.

Market predictions had suggested a 55% probability of another 25 basis point cut before the decision was announced. The decision marks the last one for SNB Chairman Thomas Jordan, capping his 12-year tenure. Jordan cited a reduction in inflation, now at 1.1% and within the bank's target range of 0-2% for the past 15 months, as a key factor allowing for the rate cut.

The Swiss franc has appreciated recently, reaching a nine-year high against the euro in early August, complicating matters for the nation's exporters. "The SNB's easing of monetary policy today accounts for the reduction in inflationary pressure," stated the SNB. The bank anticipates further rate cuts could be needed in the coming quarters to maintain price stability.

The SNB's move follows similar actions by the European Central Bank and the U.S. Federal Reserve earlier this month. Thomas Gitzel, Chief Economist at VP Bank Group, indicated that the SNB is observing a strong 'disinflationary trend' and was unusually transparent in signaling potential future cuts.

Jordan highlighted the SNB's success in combating inflation, which has enabled it to lead in lowering borrowing costs with rate cuts in March and June. He also noted the challenges posed by the strong Swiss franc for exporters, suggesting that further rate reductions might help ease these issues.

The Swiss franc strengthened further on Thursday after the rate cut announcement. The SNB also revised its inflation forecasts, projecting 1.2% in 2024, down from 1.3% in June, 0.6% in 2025 from 1.1%, and 0.7% in 2026 from 1.0%.

(With inputs from agencies.)