The Swiss National Bank cut its policy interest rate by 25 basis points, resulting in borrowing costs just above zero. The bank cited low inflationary pressures despite uncertainty surrounding trade policies. The key rate was reduced from 0.5% to 0.25%, marking the fifth consecutive cut since the easing began in March 2024, aligning with economists' expectations.
Following the decision, the Swiss franc experienced a slight decline against both the euro and the dollar. It remained stable at 0.95705 against the euro and traded at 0.8803 to the dollar, leading to a 0.4% increase in the U.S. currency for the day.
Karsten Junius, chief economist at Bank J Safra Sarasin, noted that the SNB was not only the first major central bank to cut rates in this cycle but likely the first to conclude its rate cuts. He emphasized that upward revisions of the inflation profile indicate no further cuts are necessary.
This decision coincided with a busy day for central banks, as both the Bank of England and Sweden's central bank also announced their policy decisions. The U.S. Federal Reserve maintained interest rates, citing a period of "unusually elevated" uncertainty linked to the initial policies of the Trump administration.
The new 0.25% rate is the lowest for the SNB since September 2022, bringing it close to sub-zero interest rates, a move previously not ruled out. The SNB stated that this rate adjustment ensures monetary conditions remain suitable given the low inflationary pressure and heightened downside risks.
The cut is aimed at preventing further declines in Swiss inflation, which eased to 0.3%, its lowest level in nearly four years. The bank seeks to maintain inflation within the 0-2% target range defined as price stability.
The SNB's baseline scenario anticipates moderate global growth over the coming quarters, with underlying inflationary pressures expected to gradually ease, particularly in Europe. However, it acknowledged that this scenario is currently subject to high uncertainty.
The SNB remarked that the situation could change rapidly, especially concerning trade and geopolitical factors. For instance, increasing trade barriers might hinder global economic development, while a more expansionary fiscal policy in Europe could provide medium-term economic stimulus.