After the first shot of interest rate cuts by developed countries in Europe and America was fired in March, the Swiss central bank announced another rate cut.
The Swiss Central Bank (Swiss National Bank) announced once again today that it will lower its benchmark interest rate by 0.25 percentage points to 1.25%.
In March of this year, the Swiss central bank unexpectedly announced a 25 basis point rate cut, marking the beginning of interest rate cuts by European and American central banks. Subsequently, the Bank of Sweden, the Bank of Canada, the European Central Bank, and others successively lowered their benchmark interest rates.
Interest rate cuts stem from a decrease in inflation
The Swiss central bank believes that potential inflationary pressures have once again decreased compared to the previous quarter. With the decrease in policy interest rates on that day, the Swiss central bank is able to maintain appropriate monetary conditions. The Swiss central bank will continue to closely monitor the development of inflation and adjust monetary policy as necessary to ensure that inflation remains within a range consistent with price stability in the medium term.
The Swiss central bank stated that since the last monetary policy assessment, the inflation rate has slightly increased, reaching 1.4% in May, with high prices for rent, tourism services, and oil products particularly contributing to this growth. Overall, Switzerland's inflation is mainly driven by the rise in domestic service prices.
In terms of future inflation prospects, the Swiss Central Bank predicts an average annual inflation rate of 1.3% in 2024, 1.1% in 2025, and 1.0% in 2026. This forecast is based on the assumption that the policy interest rate of the Swiss Central Bank is 1.25% throughout the entire forecast range. This means that without today's interest rate cut, the inflation rate would be even lower.
The Swiss Central Bank stated that in the first quarter of 2024, global economic growth was stable. In the past few months, inflation has fluctuated horizontally to a large extent, still exceeding central bank targets in many countries. However, the potential inflationary pressure continues to slightly decrease.
The Swiss central bank predicts that the monetary policies of many countries remain restrictive, and inflationary pressures abroad may continue to gradually ease in the coming quarters. At the same time, the global economy may rebound. But in the long run, global economic activity will only grow moderately in the coming quarters.
In terms of the global economy, this situation still faces significant risks. Inflation in some countries may persist for a longer period of time, therefore requiring more stringent monetary policies than expected. Similarly, the resurgence of geopolitical tensions may lead to a weakening of global economic activity.
In terms of economy, in the first quarter of 2024, Switzerland's GDP growth was moderate. The service industry continues to expand, while the added value of manufacturing remains stagnant. Although the unemployment rate has slightly increased further, the overall capacity utilization rate is normal.
The Swiss Central Bank believes that Switzerland's economic growth in the coming quarters may remain moderate, with an expected GDP growth rate of about 1% this year. In this environment, the unemployment rate may continue to rise slightly and the capacity utilization rate will also slightly decrease. In the medium term, economic activity should gradually improve with the support of increased foreign demand. The Swiss central bank expects a growth rate of approximately 1.5% in 2025.
At the subsequent press conference, Swiss Bank President Thomas Jordan stated that the uncertainty of future inflation development remains high. Swiss inflation is driven by domestic service prices, while political risks increase uncertainty about inflation. The Swiss central bank will continue to closely monitor the development of inflation and adjust policies if necessary. In addition, the Swiss central bank is willing to actively participate in the foreign exchange market when necessary. Support the Federal Commission in taking measures to address banking regulatory weaknesses. Regarding the foreign exchange market, Jordan emphasized that the appreciation of the Swiss franc is influenced by political uncertainty.
After the Swiss central bank announced a rate cut, the Swiss franc fell significantly against the US dollar.
Swiss central bank trend indicator
In March of this year, the Swiss central bank unexpectedly announced a 25 basis point rate cut, marking the beginning of interest rate cuts by European and American central banks. Subsequently, the Bank of Sweden, the Bank of Canada, the European Central Bank, and others successively lowered their benchmark interest rates.
The Bank of England will announce its interest rate decision tonight at 19:00 Beijing time. Although the May CPI has fallen back to the target range for the first time in three years, service sector inflation remains high. The market expects the Bank of England to maintain interest rates unchanged, but investors will pay more attention to the voting ratio, which may imply the central bank's hawk dove changes and provide clues for the next action.
In addition, whether the European Central Bank will continue to cut interest rates is particularly concerning.
On Wednesday, June 19th, Mario Centeno, a member of the European Central Bank's governing committee and Governor of Portugal, stated that as long as inflation continues to slow down, the European Central Bank can further lower interest rates, but interest rates will not return to ultra loose levels.
Senteno said, "The interest rate cycle will continue to evolve. If inflation is favorable to us, interest rates will decrease, and inflation is currently playing such a role." Regarding future monetary policy, Senteno stated that the super loose policy that lasted for many years before the European Central Bank began this round of interest rate hikes will not return.
Senteno said, "Ideally, interest rates would not return to zero. If this happens, it would be a very bad signal. Ideally, interest rates would also be close to 2%."