LONDON/ZURICH (Reuters) -The Swiss National Bank cut its main interest rate by 25 basis points to 1.50% on Thursday, a surprise move that made it the first major central bank to dial back tighter monetary policy aimed at tackling inflation.
The franc dropped after the decision, pushing the euro to its highest against the Swiss currency since mid-July last year, while Swiss government bond yields fell.
MARKET REACTION:
STOCKS: Zurich's SMI index rose 0.9% on the day, outperforming Europe's STOXX 600 benchmark index.
FOREX: The Swiss franc weakened broadly, pushing up the euro by as much as 1% to 0.978, its highest since last July, while the dollar gained as much as 1.2% to touch a session peak at 0.898.
MONEY MARKETS: Swiss 10-year bond yields were last down 5 basis points on the day at 0.706%, having earlier fallen to as low as 0.665%, according to Tradeweb
COMMENTS:
KARSTEN JUNIUS, CHIEF ECONOMIST, J SAFRA SARASIN; ZURICH:
"The SNB rightly focuses on the Swiss data that show low inflation rates, which will also remain around the middle of their target range in the coming years. The crucial difference to other countries is that wage pressure is much lower in Switzerland, such that there is only very little domestic price pressure."
"The strong real appreciation of the Swiss franc and the difficult situation of the Swiss export sector was another argument for the rate cut and for a weaker Swiss franc going forward. Given the low inflation forecast of only 1.1.% for 2026 another rate cut in June is likely. We expect two more rate cuts this year."
ALEXANDER KOCH, HEAD (LON:HEAD) OF MACRO & FIXED INCOME RESEARCH, RAIFFEISEN, ZURICH:
"In contrast to the USA and the eurozone, inflation has not recently been higher than expected again, but rather lower than expected. The SNB is therefore more confident than the other central banks that inflation will remain comfortably within the target range in the medium term.
And by cutting interest rates early, it has utilised its room for manoeuvre to support economic development. However, the comparatively moderate interest rate level, together with the robust economy, means that no overly aggressive easing is expected in the further course of the year."
ADRIAN PRETTEJOHN, EUROPEAN ECOMOMIST, CAPITAL ECONOMICS, LONDON:
"While the consensus forecast had been for the SNB to keep rates on hold, I don’t think the decision will come as too much of a surprise to investors. Switzerland is one of the few countries to have successfully tamed inflation and with the strength of the franc curtailing exports, a rate cut was clearly on the table. However, we think the SNB will probably not cut rates in June as the inflation outlook will be relatively unchanged from currently. We think the next rate cut will be in September."
PHILIPP BURCKHARDT, FIXED INCOME STRATEGIST, LOMBARD ODIER, GENEVA:
"Although the Swiss franc depreciated slightly in the first quarter, it has been trending towards real and nominal appreciation for some time now. On the one hand, this leads to lower imported inflation, but at the same time also hinders growth.
"In that sense, the interest rate cut was the logical consequence. We now expect further interest rate cuts this year. This is also an ideal farewell gift from Thomas Jordan, who can now clearly set the direction for his successor."
CHARLOTTE DE MONTPELLIER, SENIOR ECONOMIST, ING RESEARCH, BRUSSELS:
"This rate cut is clearly a surprise. The huge downward revision to its conditional inflation forecasts suggests a further rate cut is highly likely in June, and also in September."
SAMY CHAAR, CHIEF ECONOMIST, LOMBARD ODIER, GENEVA:
"We’ve watched with great interest Powell’s speech and the SNB today, and it broadly validates the narrative that, although we had a bit of heat in some inflation prints, and particularly services inflation, overall central banks are in a relatively comfortable spot."
"The area where it was most comfortable is Switzerland because inflation is constrained. The second area most likely (for a rate cut) is the euro area – as it is becoming pretty clear that wages have peaked, and the only part of inflation that is sticky is services, and what’s keeping that up is idiosyncratic factors.
"Let’s keep in mind they (the SNB) had to revise significantly down their inflation forecast. It does mean that inflation is coming in much, much lower than anticipated, and the prospects are that it will continue to be relatively low.
"One thing that was highlighted in the SNB statement - it was phrased a little differently from Powell and is also a concern for Europe – is there a lot of concerns about weak global growth. If you’re a central bank and inflation is coming to target, there comes a point where you don’t want to risk it."
JUSTIN ONUEKWUSI, CIO, ST JAMES'S PLACE, LONDON:
"We're in a global loosening cycle and it is about the timing of moves."
"It does surprise us a little that they (the SNB) have gone early. It was 50-50 for a move.
"Central banks in general will err on the side of the caution."
COLIN ASHER, SENIOR ECONOMIST, MIZUHO BANK, LONDON:
"The scale of the inflation problem in Switzerland has never been particularly large, and the Swiss National Bank is not at risk of inflation expectations becoming unanchored.
"Consequently, with the inflation outlook benign, the Swiss National Bank has felt free to ease policy. The SNB only meets every quarter, and in the wake of the dovish Fed meeting, it's certainly possible that other central banks would have leapfrogged by the time the next meeting comes around, and that has helped them get over the line this time."
JAN VON GERICH, CHIEF ANALYST, NORDEA, HELSINKI:
"It's the first central bank in the developed world to ease so that shows the direction where the others are going.
"The SNB was always the first likely mover, so this shouldn't have an impact on what the others will do.
"But from the markets' point of view, this does open the door to what could happen elsewhere.
"Swiss inflation numbers have been softer than in the euro area, so it was a question of whether the SNB would move at this meeting or the next one."