Switzerland cuts interest rates more than expected

(Sharecast News) - Switzerland's central bank has slashed its benchmark interest rate by more than expected amid a strengthening franc and tepid economic growth with inflation running lower than expected. The Swiss National Bank (SNB) SNB policy rate by 50 basis points to 0.5%, its lowest level in two years and below the cut to 0.75% expected by the market.

This was the biggest cut to rates in almost a decade and followed three straight 25bp reductions at previous meetings.

The Swiss franc dropped 0.6% against the euro following the decision to 1.0711, but has still risen nearly 5% since mid-July.

In a policy statement on Thursday, the SNB said underlying inflationary pressures were running lower than forecast, with the annual change in consumer prices dropping to just 0.7% in November from 1.1% in August as oil and food inflation came in below estimates.

Assuming interest rates stay the same, the SNB predicts annual inflation will average 1.1% in 2024, falling to 0.3% in 2025 before picking up to 0.8% in 2026.

"Without today's rate cut, the conditional inflation forecast would have been lower," the central bank said.

Meanwhile, GDP growth in Switzerland was "only modest" in the third quarter, with strong growth in the services sector partly offset by declines in manufacturing. Meanwhile, there was a further slight increase in unemployment, while employment growth was subdued.

The SNB predicts a 1% expansion in GDP this year, accelerating to between 1% and 1.5% next year, though unemployment is expected to continue its path upwards.

"Thanks also to the easing of monetary policy in recent quarters, growth should pick up somewhat next year, albeit only slightly due to the moderate global economic activity," the central bank said.