The Swiss National Bank, which started the global trend of monetary easing in March, made its third rate cut on Thursday, cutting the rate by 25 basis points to 1%. Switzerland has largely avoided the spike in inflation seen in much of the developed world, with consumer prices rising just 1.1% in August, compared to 1.3% in July. Inflation has remained within the SNB’s target range of 0% to 2% over the past 15 months.
The central bank warned that further interest rate cuts “may be necessary in the coming quarters” to prevent inflation from slowing too much. The increasing strength of the Swiss franc against both the euro and the US dollar since the SNB’s previous cut in June has contributed to downward pressure on inflation, while recent business survey data pointed to economic weakness. Market expectations now point to two additional 25 basis point cuts from the SNB.
Despite these developments, analysts at UBS believe the Swiss National Bank is nearing the end of its rate-cutting cycle, having moved early to cut interest rates. UBS contrasts this with the global trend towards lower interest rates, which is expected to continue.
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The Swiss franc rose slightly after the downgrade, and some pointed to expectations of a 50 basis point cut that had been priced as a lottery currency before the meeting, as logic: