Switzerland became the first developed economy to lower interest rates

The Swiss Central Bank (SNB) on March 21 surprised the global financial market when it decided to reduce interest rates, becoming the first major central bank in the world to launch a major easing cycle. currency book.

In an unexpected move, the SNB lowered the policy interest rate by 0.25 percentage points to 1.5%, predicting that inflation in Switzerland will remain below 2% in the near future. Previously, in a survey by Reuters news agency, experts predicted that this SNB meeting would come to a decision to keep interest rates unchanged at 1.75%.

“In the past few months, inflation has fallen below 2%, and is therefore within the threshold that the SNB considers price stability. According to new forecasts, inflation is likely to stay in this range for the next few years,” the SNB statement read.

According to the latest statistics, inflation in Switzerland continued to decrease in February, to 1.2%.

In a statement after the meeting, the SNB also reduced its annual inflation forecast, saying that inflation in Switzerland will average 1.4% this year, from 1.9% in its forecast in December. Inflation forecast for 2025 is reduced to 1.2% from 1.6%. Regarding 2026, the SNB believes that inflation will be only 1.1%.

After the SNB’s surprising move, analysts from economic research company Capital Economics forecast that the central bank will have two more interest rate cuts this year. The SNB “has become softer and inflation is likely to be lower than their forecast,” a report by Capital Economics said.

“We think inflation will be even lower than the SNB’s new forecast and will remain in the current 1.2% area before falling below 1% next year. Accordingly, we forecast that the SNB will reduce interest rates in its meetings in September and December, bringing the policy rate to 1%. They will then maintain this interest rate in 2025 and 2026,” the report wrote.

The September meeting will likely be the last meeting of the SNB under the chairmanship of Chairman Thomas Jordan – who will leave this position at the end of September after 12 years in power.

The SNB forecasts that Switzerland’s economic growth “may remain modest in the coming quarters”, with the growth rate of gross domestic product (GDP) only reaching about 1% this year.

“There is uncertainty in our forecast for the Swiss economy, as well as the global economy. The main risk here is that the performance of other economies may weaken. Momentum in the Swiss mortgage market and real estate market has weakened significantly in recent quarters. These markets will continue to face risks of weakness in the near future,” said SNB.

At the macro level, the SNB warns that global economic growth will only be modest in the coming quarters, along with a possible reduction in inflation globally thanks in part to the monetary policy strategy. The tightening was maintained for a long time. However, the agency admitted “major risks” and geopolitical tensions could cast a shadow on the world economic outlook.

Thus, Switzerland is the first developed economy in the world to cut interest rates after a long period of high inflation pressure due to the impact of the Covid-19 pandemic on global trade and the war. Russia-Ukraine war. Switzerland is also an economy affected by the banking crisis last year, when the Government of this country had to support UBS bank to acquire Credit Suisse – a veteran bank of the country that was then on the verge of taking over. brink of collapse.

The SNB’s announcement of lowering interest rates was made one day after the US Federal Reserve (Fed) decided to keep interest rates unchanged but signaled that it would reduce interest rates this year. On the same day, March 21, the Bank of England (BOE) also kept interest rates unchanged and said that it was on the right track to lower interest rates.

The Norwegian Central Bank and the Australian Central Bank also did not change interest rates at their meeting this week. The Bank of Japan (BOJ) alone raised interest rates this week, ending the last remaining negative interest rates in the world.

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