Swiss National Bank Lowers Policy Rate to 1.0% Amid Easing Inflation
On September 26, 2024, the Swiss National Bank (SNB) announced a monetary policy easing by lowering its policy rate by 0.25 percentage points to 1.0%. This decision comes as inflationary pressures in Switzerland have decreased significantly, largely due to the appreciation of the Swiss franc and lower import costs.
Key Drivers Behind the Rate Cut
The SNB's decision to lower rates reflects the declining inflation in the country. Inflation dropped to 1.1% in August, down from 1.4% in May, mainly due to reduced costs of imported goods and services, while domestic price pressures remain a concern, particularly in services such as tourism and rents.
In its assessment, the SNB indicated that further rate cuts might be necessary to ensure price stability in the medium term. The bank’s inflation forecast now projects average inflation at 1.2% for 2024, 0.6% for 2025, and 0.7% for 2026. These lower inflation expectations allow for more accommodative monetary policies, as the SNB aims to maintain inflation within its target range of price stability.
Global Economic Context and Risks
Globally, the second quarter of 2024 saw moderate economic growth, while inflation remained above target in many countries. However, central banks, including the SNB, are beginning to ease monetary policies in response to declining inflation.
Despite this easing trend, the SNB warned that global uncertainties persist. Geopolitical tensions and the potential for inflation to remain elevated in certain economies present significant risks to both the global and Swiss economies.
Swiss Economic Outlook
Switzerland experienced solid GDP growth in the second quarter of 2024, driven mainly by strong performance in the chemicals and pharmaceuticals sectors, while growth in other industries was more moderate. Unemployment saw a slight increase, and the SNB projects overall GDP growth of around 1% for the year. The outlook for 2025 is slightly more optimistic, with GDP growth expected to reach 1.5%.
However, the appreciation of the Swiss franc and the subdued global economic environment may continue to weigh on Swiss growth in the coming quarters. The SNB anticipates that growth will remain modest but expects gradual improvement as these pressures subside.
Real Estate and Mortgage Markets
In recent quarters, the momentum in the Swiss mortgage and real estate markets has slowed compared to previous years. While vulnerabilities in these markets have lessened somewhat, they still exist, leaving the sector susceptible to future risks.
Conclusion
The SNB’s rate cut reflects its proactive approach to managing inflation and supporting economic growth. With inflation easing and global risks still prominent, the SNB remains open to further rate cuts if needed to maintain price stability. As Switzerland navigates these economic uncertainties, the focus will remain on balancing inflation control with fostering moderate economic growth
