(Bloomberg) — The Swiss National Bank halved its interest rate with a 50 basis-point cut, unexpectedly ratcheting up easing to intensify its defense of the franc.
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Officials lowered their key benchmark to 0.5% on Thursday, a step expected only by a small minority of economists surveyed by Bloomberg, most of whom anticipated only a quarter-point move.
The Swiss franc fell around 0.6% to 0.9344 per euro after the decision, pulling further away from a near-decade high hit against the euro last month.
“The SNB also remains willing to be active in the foreign exchange market as necessary,” officials said in a statement. “The SNB will continue to monitor the situation closely, and will adjust its monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term.”
The central bank’s biggest reduction in the current cycle amounts to a show of force at Martin Schlegel’s first decision as president, aiming to unsettle traders who have plowed money into the franc in recognition of its traditional role as a haven at times of geopolitical stress.
While the half-point move undermines the currency’s attractiveness to speculators, it also uses up precious ammunition. Borrowing costs are now only two quarter-point steps away from zero. Reaching that would leave officials on the cusp of choosing between market interventions to stem franc gains or else going negative — options which each come at a cost.
Having brought down borrowing costs at all four meetings of 2024 to one of the world’s lowest levels, the central bank’s rate is already back at the point it reached in September 2022, when it ended almost eight years of subzero monetary policy.
“Inflation risks are on the downside and the economy is growing below potential while Switzerland’s main export are struggling with structural and cyclical problems,” said Karsten Junius, chief economist at Bank J. Safra Sarasin in Zurich, who predicted the move and sees two further quarter-point cuts in the first half of next year. “Schlegel clearly signals that he is as determined to fight too low inflation as his predecessor.”
Officials are trying to stop inflation from undershooting the floor of their 0-2% target range. The franc last month touched the highest level against the euro in almost a decade, eroding Swiss consumer-price pressures by making imports cheaper.