The Swiss central bank opens the ball on rate cuts around the world – 03/21/2024 at 1:57 p.m.


(AFP / FABRICE COFFRINI)

(AFP / FABRICE COFFRINI)

The Swiss National Bank (SNB) decided on Thursday to lower its key rate, becoming the first central bank in the world to change its monetary policy since the rapid turn of the screw launched almost two years ago to fight inflation.

The Bank of England is due to announce its decision later today but analysts expect the status quo.

The Bank of Norway, for its part, unsurprisingly, did not touch its key rate at 4.5% on Thursday, suggesting a first reduction during the autumn.

Price developments in Switzerland are much more reasonable than elsewhere.

The SNB thus justified the reduction of a quarter of a point in its reference interest rate, to bring it to 1.5%, by its “effective” fight against inflation.

This decision took most analysts by surprise, who were leaning towards a rate cut in June.

The SNB “thus declares victory over inflation”, reacted Fredy Hasenmaile, chief economist of the Raiffeisen bank, in a market commentary.

For the moment the other major central banks in the world – with the exception of that of Japan which has atypical cycles – have preferred to wait while they continue to fight against inflation which has soared in 2022 in particular because of effects of the war led by Russia in Ukraine.

– Federal Reserve Reserved –

The American Federal Reserve (Fed) thus kept its rates unchanged on Wednesday, which remain at the highest level in more than twenty years, but it retains the plan to reduce the cost of credit three times this year.

Overnight rates remain between 5.25% and 5.50%, the central bank announced in a press release, after a unanimous decision by the members of the Monetary Committee (FOMC).

The Bank of England (BoE) is also expected to maintain the status quo despite falling inflation in the United Kingdom, during a week full of monetary policy decisions.

Economists agree that the British central bank will keep its key rate at 5.25%, a level – the highest since 2008 – reached in September.

Inflation in the United Kingdom fell to 3.4% year-on-year in February. At this level, at its lowest since September 2021 and in clear decline since its peak of more than 11% at the end of 2022, it remains the highest in the G7 and well above the BoE's 2% objective.

Analysts are considering a first BoE rate cut in June, compared to August so far, notes Kathleen Brooks, analyst at XTB.

– Swiss industry smiles –

This is the first time since the rapid turn of the screw that began in 2022 that the SNB has relaxed its monetary policy.

She took into account “the reduction in inflationary pressure”, she said in a press release.

Since June 2023, inflation in Switzerland has fallen below the 2% mark targeted by the monetary institution and fell to 1.2% in February, leading the SNB to revise its forecast downward for 2024 to 1.4 % against 1.9% previously, and 1.2% for 2025, against 1.6% previously.

It also increased its growth forecast for the Swiss economy to 1%, compared to 0.5% to 1% previously.

The goal was not to be the first or the last central bank to lower its rates but to make a decision at the “right time for Switzerland”, clarified its president, Thomas Jordan, during a conference in Zurich.

By making credit cheaper, the SNB responded to calls from Swiss exporting companies.

The industry in particular is affected by a slowdown in orders in the face of concerns about the global economy but also interest rates which are increasing investment costs.

Exporting companies are also penalized by the strength of the Swiss franc, which remains at a high level compared to the dollar and the euro even if it has lost some ballast since December.

In the wake of this announcement, the Swiss franc lost ground against the dollar and the euro.

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