By John Revill
ZURICH (Reuters) -The Swiss National Bank reduced interest rates by 25 basis points on Thursday, echoing steps to lower borrowing costs by the European Central Bank and U.S. Federal Reserve, and left the door wide open for more rate cuts as inflation cools sharply.
The SNB cut its policy rate to 1.00%, the lowest level since early 2023, as expected by analysts in a Reuters poll.
The cut was its third such reduction this year as the central bank dialled back measures designed to combat inflation.
The decision, the last in the 12-year tenure of SNB Chairman Thomas Jordan, was enabled by the taming of price rises in Switzerland – which slowed to 1.1% in August and has been within the central bank’s 0-2% target range for the last 15 months.
The SNB is ready to cut interest rates again, Jordan said after the decision, noting that inflationary pressure in Switzerland had decreased significantly.
“Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term,” he told a press conference after his 42nd and last monetary policy meeting.
His successor Martin Schlegel said the SNB’s view that inflation was likely to fall further meant further cuts were likely, although he did not give any guarantees.
“It’s important to know that we don’t give forward guidance and we never pre commit, but if you look at monetary conditions, the situation now, it’s not unlikely that we also cut in December,” Schlegel told Reuters in an interview.
The current SNB Vice Chairman, who takes charge of the central bank on Tuesday, did not give guidance on possible moves in the more distant future.
The SNB’s success in fighting inflation has enabled it to become the frontrunner among central banks in lowering borrowing costs, cutting rates in both March and June.
Schlegel said decision to cut rates again was helped by weaker inflationary pressure in Switzerland, with the SNB slashing its inflation forecasts for 2025 and 2026 and predicting consumer price growth of 0.6% in the second quarter of 2027.
He also highlighted the rise in the value of the Swiss franc as a contributor to low inflation and acknowledged the difficulties the safe haven currency caused for Swiss exporters already facing weak demand from abroad
The franc has appreciated in recent weeks, hitting its highest level in nine years against the euro in early August.
It strengthened after the 25-basis-point cut, which followed similar monetary policy easing by the ECB and the Fed earlier this month, was announced.
Charlotte de Montpellier, senior economist at ING, said the SNB’s 25 point reduction was “the most dovish you could ask for.”
“Not only is the SNB making it very clear that further rate cuts may be necessary, but it has also revised its inflation forecasts very sharply downwards, and much more sharply than expected,” she said.
CUTS ON THE WAY
Karsten Junius, chief economist at J Safra Sarasin, saw the bank’s outlook as more dovish than markets expected.
“This is the strongest hint towards future policy decisions that the SNB has given in the past years and a break from previous communication patterns,” he said.
The SNB trimmed its 2024 inflation forecast to 1.2% from its 1.3% prediction in June. It also cut its forecasts for 2025 to 0.6% from 1.1% previously and for 2026 to 0.7% from 1.0%.
“With inflation now expected to average 0.6% in 2025 and 0.7% in 2027, the SNB seems to want to send a very clear signal to the markets that further rate cuts are on the way, in order to weaken the Swiss franc,” said de Montpellier at ING.
