This central bank surprised markets with the first rate cut

25 March 2024 - 13:00

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The first move to reduce interest rates has been made ahead of the ECB and the Fed.

This central bank surprised markets with the first rate cut

The Swiss National Bank has cut the main interest rate by 25 basis points to 1.50%. The move was a surprise that effectively crowned the central bank as the first major institution to reduce its hitherto restrictive monetary policy.

The Swiss franc fell after the decision, falling 1% against the euro, to its weakest level since July 2023. The currency also lost 1.2% against the dollar, to a new four-month low.

Shares listed in Zurich rose. Most analysts polled by Reuters expected the usually conservative SNB to keep rates unchanged at 1.75% and wait at least another three months before moving. The step comes after Swiss inflation fell to 1.2% in February, the ninth consecutive month in which price increases were within the SNB’s 0-2% target range.

Now, more than ever, the spotlight is on the BoE, ECB, and Fed and their timing for reducing rates.

Switzerland cuts rates first of all. What will the ECB and Fed do now?

The Swiss National Bank surprised the market with its decision to lower its key rate by 0.25 percentage points to 1.5%, saying that domestic inflation will likely remain below 2% for the foreseeable future.

The SNB took into account the reduction in inflationary pressure and the real appreciation of the Swiss franc over the past year. The cut will support economic activity according to the bank’s note.

Once again this cycle, the Swiss National Bank acted more quickly than most market participants had anticipated. We expect that the main reason for this decision was likely to be fear of fueling upside risks to the currency, as major central banks prepare for the first rate cut in the three months leading up to the next SNB meeting in June”, commented Maeva Cousin, senior economist at Bloomberg.

Switzerland is the first advanced economy to cut interest rates after a prolonged period of high inflationary pressures, exacerbated by the impact of the COVID-19 pandemic on global trade and Russia’s war in Ukraine. Additionally, the nation was hit by banking sector jitters last year when the government intervened to facilitate UBS’s takeover of flagging rival Credit Suisse.

The announcement preceded the monetary policy decision of the Bank of England, which in principle should leave its monetary policy unchanged despite the decline in inflation.

Also on Thursday 21 March, the Norwegian central bank kept rates stable at 4.5%. Yesterday, the Federal Reserve reiterated its expectations for three rate cuts in 2024 but has not yet decreased the cost of borrowing.

In Europe, the ECB is expected to make its first reduction in borrowing costs in June after keeping interest rates unchanged earlier this month.

It is a courageous move to go before the ECB and Fed first, even if the SNB will not see it that way, and probably believes that other central banks will also cut rates by the end of the year”, commented UBS economist Alessandro Bee.

Original article published on Italy 2024-03-21 11:23:16. Original title: Il primo taglio dei tassi è arrivato. Questa banca centrale ha sorpreso tutti

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