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Switzerland's central bank announced on Thursday that it has reduced its key interest rate by a quarter percentage point, marking the third cut this year. The decision comes in response to the robust Swiss franc and a decline in inflationary pressures.
Following similar cuts in March and June, the Swiss National Bank brought the rate down to one percent -- and indicated further reductions may be coming down the line.
"Inflationary pressure in Switzerland has again decreased significantly compared to the previous quarter," the SNB said in a statement. "Among other things, this decrease reflects the appreciation of the Swiss franc over the last three months."
The SNB's easing of monetary policy today takes the reduction in inflationary pressure into account.
"Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term."
While most economists expected the 0.25-percentage-point easing of monetary policy, some wondered whether the SNB might go further and follow the lead of the US Federal Reserve, which cut rates by half a percentage point on September 18.
Like gold, the Japanese yen or German bonds, the Swiss franc is one of the major havens in which investors take refuge in times of uncertainty. Thursday's decision came amid strong pressure from industry, particularly from the key watchmaking exports sector, to rein in the rise of the franc.
The franc has accelerated significantly against the euro in recent months, approaching its peaks of late 2023 and early 2024. Since mid-July, the euro has lost around three percent of its value against the Swiss currency. At around 0845 GMT, the Swiss franc was up 0.14 percent against the dollar, at 0.8491 francs. It was up 0.11 percent against the euro, at 0.9456 francs.
Inflation was at 1.4 percent year-on-year in May, but fell back to 1.1 percent in August, with the SNB saying imported goods and services contributed to the decline.
"Overall, inflation in Switzerland is currently being driven mainly by higher prices for domestic services," it said. The SNB lowered its inflation forecast to 1.2 percent for 2024, 0.6 percent for 2026 and 0.7 percent in 2026.
"The stronger Swiss franc, the lower oil price and electricity price cuts announced for next January have contributed to the downward revision," the central bank explained.
Lewis Musonye
