Central Bank cuts rates in June

At its meeting on 20 June, the Swiss National Bank (SNB) trimmed its policy rate from 1.50% to 1.25%, following a same-sized cut in March.

The decision to cut rates was driven by subdued inflation, which has been in line with the SNB’s target of below 2% so far this year. Moreover, the Central Bank projects inflation to remain within target going forward, and revised down its inflation forecasts relative to March; the Bank now sees average inflation of 1.3% this year and 1.1% next year.

The Bank’s forward guidance was open-ended. Most of our panelists see interest rates falling further by end-2024, in light of ongoing mild price pressures.

On the outlook, EIU analysts said: “Assuming that inflation remains subdued (our baseline case), we expect the SNB to make 25-basis-point cuts in June and September, bringing rates to 1% by end-2024, and that rates will then stabilise at about 0.75% for the remainder of the forecast period.”  Goldman Sachs analysts were more hawkish: “With the updated language in the Monetary Policy Assessment, which states that 'with today’s lowering of the SNB policy rate, the SNB is able to maintain appropriate monetary conditions' and our estimate of the neutral rate at around 1.25%, we maintain our view that today's cut is likely to be the end of the SNB's easing cycle.”

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