In a decisive action, the Swiss National Bank (SNB) reduced its key interest rate by 50 basis points, a move that was not widely anticipated. The rate cut, announced on Thursday, brought the benchmark down to 0.5%. This decision came as a surprise to many as a Bloomberg survey had revealed that the majority of economists expected a more modest quarter-point reduction.
The SNB's aggressive rate cut, the largest in nearly a decade, was aimed at curbing the strength of the Swiss franc. Following the announcement, the franc experienced a notable decline against the euro, dropping by as much as 0.7% to a low of 0.9344 per euro, which is the weakest it has been since November. It was later reported trading down by 0.4% around 12:35 p.m. in London.
Martin Schlegel, the President of the SNB, in his conversation with Bloomberg Television, justified the size of the rate cut. He stated, "To wait on cuts doesn’t make any sense. This would mean that we have a monetary policy that is too restrictive for the moment." The move marks Schlegel's first major policy decision since assuming the role of president of the central bank.
The SNB's action is interpreted as a preemptive measure to dissuade investors from flocking to the Swiss franc, which is commonly sought as a safe-haven currency during geopolitical tensions. Current global uncertainties, such as the ongoing conflicts in Ukraine and the Middle East, as well as the prospect of Donald Trump's return to the White House, have prompted this strategic monetary policy adjustment.
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