Swiss monetary policy – National Bank surprisingly lowers key interest rate to 1.5 percent – News

  • The Swiss National Bank (SNB) lowers the key interest rate to 1.5 percent.
  • The central bank announced that the SNB key interest rate will be reduced by 0.25 percentage points.
  • By lowering the key interest rate, the SNB is the first major central bank to scale back its tight monetary policy to curb inflation.
  • In advance, analysts had expected the SNB key interest rate to remain the same.

“With our decision, we take into account the reduced inflationary pressure and the real appreciation of the franc last year,” said SNB President Thomas Jordan. Inflation has been below the SNB target of 2 percent for several months now. “The interest rate cut also supports economic development.”

However, the SNB will continue to closely monitor the development of inflation. It will adjust its monetary policy again “if necessary” in order to ensure price stability in the medium term.

And the SNB is still prepared to be active in the foreign exchange market if necessary. “We will use this tool immediately if necessary,” said Jordan. There is also no “inhibition” in expanding the balance sheet in this context, if necessary.

SRF classification of the interest rate decision


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Why is the SNB already reducing interest rates today?

This comes as a surprise to the majority of economists, but not to everyone, as inflation has been trending downwards for some time. The SNB said this morning that there is no longer any danger of the Swiss economy overheating and making everything even more expensive than it already is. To put it more economically: The SNB believes that this inflation has been successfully combated with the five interest rate increases since 2022.

Where is the price increase at the moment?

According to the SNB’s forecasts, inflation is expected to be well below 2% by 2026. However, the SNB is already lowering the key interest rate today because it believes that the global economy is moving rather slowly. It is being held back by high interest rates in many places, where inflation is even higher than here – and also by geopolitical conflicts. The SNB certainly wants to demonstrate independence from the European central bank by rushing forward. In the past, the SNB often had to adapt to the ECB’s timetable and lagged behind.

What does it mean for all of us, for the economy, that the key interest rate will be lower from tomorrow?

Every coin has two sides. For savers, this tends to mean falling interest rates on their savings books again. However, rents will not rise any further for the time being. For the economy, this means that companies can get loans a little cheaper again. The export economy probably benefits the most because the franc becomes weaker when there is less interest on the franc. The currency is less interesting for investors. The franc also reacted immediately this morning and lost slightly in value against the dollar and euro. This is boosting Swiss exports and the export industry is happy. The franc had recently appreciated significantly – with corresponding complaints from export companies.

Assessments by Charlotte Jacquemart, SRF business editor

Lower inflation forecast

In its latest forecast, the SNB assumes that inflation will average 1.4 percent in 2024. And only values ​​of 1.2 and 1.1 percent are expected for 2025 and 2026. A value of over 2 percent is not forecast for any quarter in the forecast period.

The SNB has thus significantly lowered its forecasts compared to its last assessment in December. At that time, with a key interest rate of 1.75 percent, she had predicted annual average values ​​of 2.2 percent for 2024 and 1.9 percent for 2025.

Falling inflation on imported goods

“We are now seeing that inflation is significantly lower for many groups of goods, especially for imported goods,” said National Bank President Jordan. Inflation is lower for petroleum products or imported clothing, for example. Inflation is somewhat higher for domestic services and rents.

The SNB’s forecasts are always based on the assumption that the SNB key interest rate will remain at the current interest rate level over the entire forecast period. Relatively low inflation forecasts therefore increase the scope for monetary authorities to reduce interest rates. According to economists, further interest rate cuts can be expected in the near future.

Geopolitics brings uncertainty

According to the SNB President, there is also a certain amount of uncertainty. For example, oil supplies could become more scarce due to developments in the Middle East. “That would have a big impact on prices and that could drive up inflation,” he said. However, the risks have not yet materialized.

Before the SNB interest rate cut, the US Federal Reserve had stuck to its course the day before: It left the key interest rate in the range of 5.25 to 5.50 percent and at the same time signaled that it was likely to fall this year – by 0.75 percentage points. At the European Central Bank (ECB), which recently left its key interest rate unchanged, there are increasing signs of a turnaround in interest rates in June.

SNB is slightly more optimistic about GDP growth


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The SNB has become slightly more optimistic about economic growth for the current year. It now forecasts gross domestic product (GDP) growth of around 1 percent (previously: “between 0.5-1.0%)”.

However, the monetary authorities emphasized that weak demand from abroad and the real appreciation of the franc last year were having a dampening effect. In addition, the forecast is subject to significant uncertainty, according to the SNB. The main risk is weaker economic development abroad. It cannot be ruled out that the global economy will develop weaker than expected.

As usual, the SNB also commented on the mortgage and real estate markets. The momentum has noticeably decreased over the last few quarters. However, the vulnerability of these markets still exists.

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