The Swiss National Bank opens the ball with key rate cuts

(Article published on Thursday March 21, 2024 at 12:27 p.m. and updated at 3:17 p.m.) The pivot in monetary policies has begun. This Thursday, the Swiss National Bank (SNB) decided to lower its key rate for the first time in two years. Like other central banks, the SNB had tightened its monetary policy in mid-2022 to fight inflation before taking a break in September and December by maintaining its key rate at 1.75%. This Thursday, it reduced its reference interest rate by a quarter of a point to bring it to 1.5%. In fact, she believes that her “ fight against inflation » was effective.

Since June 2023, inflation in Switzerland has fallen below the 2% mark, the objective targeted by the monetary institution, which led it to revise its forecast for 2024, to 1.4% for 2024, against 1. 9% previously, and 1.2% for 2025, compared to 1.6% previously. It also raised its growth forecast for the Swiss economy to 1%, compared to an estimate ranging from 0.5% to 1% at its previous quarterly monetary policy meeting in December.

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Swiss industry is struggling

The decision nevertheless came as a surprise. Only a handful of economists expected the SNB to cut its key rate, giving a boost to industry which is suffering from the strength of the Swiss franc. Of the nine economists surveyed by the Swiss agency AWP, seven expected the SNB to leave its key rate unchanged, but two expected it to lower it to 1.5%.

The industry in Switzerland has experienced a slowdown in its 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.

“Key rates will not fall below 3% in Europe” (Patrick Artus, Natixis)

Moreover, the response of the Swiss franc to the announcement of a rate cut was not long in coming. Around 10:55 a.m. Paris time, the Swiss currency fell by 0.81% against the greenback, to 0.8941 Swiss francs per dollar, while it also slipped by 0.73% against the single currency, to 0. 9757 Swiss franc per euro, after hitting a low since July 2023 at 0.9782 Swiss franc per euro.

Several central banks are considering lowering their rates

The decision also and above all surprised, because the SNB is one of the first major central banks to lower its key rates. But the latter should soon be followed by other of its counterparts.

During its meeting this Thursday, the Bank of Norway, unsurprisingly, left its key rate unchanged on Thursday, at 4.5%. But she hinted at a first reduction in September.

The rate trajectory presented today indicates (…) that the rate will be lowered for the first time this fall, most likely in September “, Central Bank Governor Ida Wolden Bache said at a press conference.

The day before, the President of the ECB, Christine Lagarde, for her part recognized that “ we cannot wait until we have all the relevant information » to decide on the rate cut, before adding that “ by doing so, we would risk adjusting our policy too late », and take the eurozone towards a recession. As a reminder, inflation in the euro zone fell to 2.6% in February while the Old Continent finds itself on the brink of recession with growth of only 0.8% expected in 2024.

For its part, the Bank of England (BoE) left its interest rate unchanged at 5.25% on Thursday, as expected, citing falling inflation but still above its target. However, she also hinted at the approach of monetary easing.

The Fed is playing for time

Across the Atlantic, the members of the American Federal Reserve Committee (FOMC) announced that they were counting on three rate cuts of 0.25 percentage points in 2024 and even downgraded their outlook for reductions for 2025 with three additional reductions. , by 0.25 points, compared to four planned at their December meeting.

The latter also cast doubt on the date of the first drop, stating “ do not expect it to be appropriate to lower the rate target until there is greater confidence in the sustainable path of inflation towards the 2% target “. And for good reason, inflation still remains too “ high » in the United States, according to Jerome Powell. The latter notably rebounded to 3.2% (CPI) in February – far from its objective – while growth should remain at 2.1% in 2024 according to the Fed, against 1.4% previously forecast.

“The slowdown in wage growth is starting to be seen but it is still progressing a little too much and is supporting inflation. Employment must further relax to remove pressure on wages and therefore the Fed must maintain a restrictive policy to slow down business activity.”analyzed Wednesday for La Tribune Florence Pisani, director of economic research at the asset manager Candriam.

(With AFP)