The Swiss National Bank lowered interest rates on Thursday, becoming the first major central bank to do so after a prolonged series of hikes to combat rising inflation, with all eyes on whether the US Federal Reserve will follow suit.
The SNB decreased its interest rate by a quarter point to 1.5 percent in response to a Swiss tightening strategy that began in June 2022.
In a busy week for central banks, the Federal Reserve held US interest rates unchanged on Wednesday, but left the door open for three more rate cuts by the end of year.
The Bank of England and the Norwegian central bank kept their key interest rates constant on Thursday, but are expected to begin reducing later this year.
Central banks throughout the world have raised borrowing prices in recent years to contain inflation, which soared when economies emerged from Covid epidemic lockdowns and intensified after energy producer Russia attacked agricultural power Ukraine in early February 2022.
In Switzerland, SNB chief Thomas Jordan stated that the decision to cut now was not made to outperform other central banks, but because it was “the right time” for the country.
The action propelled the Swiss franc to multi-month lows against the dollar and the euro.
“The easing of monetary policy has been made possible because the fight against inflation over the past two and a half years has been effective,” the European Central Bank said in a statement.
“For some months now, inflation has been back below two percent and thus in the range the SNB equates with price stability.”
The Swiss central bank predicts low global economic growth and further inflation decrease in the coming quarters, indicating an uncertain global outlook.
Capital Economics’ Europe economist, Adrian Prettejohn, predicted that the Swiss central bank would slash interest rates twice more in 2024.
“We forecast the SNB to cut rates at the September and December meetings taking the policy rate to one percent, where we think it will remain throughout 2025 and 2026.”
The SNB warned that inflation in some nations could remain high for an extended period of time, while geopolitical tensions could rise.
“It therefore cannot be ruled out that global economic activity will be weaker than assumed,” the U.S. Federal Reserve warned.
“Our prediction for Switzerland, like the world economy, is susceptible to considerable uncertainty. The biggest concern is decreased economic activity abroad.”
On Wednesday, the Fed kept US interest rates at a 23-year high.
It stated that the decision to keep its key lending rate between 5.25 percent and 5.50 percent allows policymakers to “carefully assess incoming data, the evolving outlook, and the balance of risks”.
The Bank of England maintained its main interest rate at a 16-year high of 5.25 percent, rejecting a drop as UK inflation remains significantly higher than the objective.
In the minutes of its most recent meeting, the BoE stated that “monetary policy will need to remain restrictive for sufficiently long to return inflation to the two-percent target sustainably”.
Official figures released this week indicated that UK annual inflation fell to 3.4 percent, the lowest level in nearly 2.5 years.
The Norwegian central bank left the interest rate unchanged at 4.5 percent.
Christine Lagarde, president of the European Central Bank, warned on Wednesday against the possibility of moving “too late” on interest rate cuts, repeating that the eurozone’s first decrease in borrowing costs will occur in June.
While other global central banks were considering cutbacks, the Bank of Japan this week ended its extensive monetary stimulus programme, raising interest rates for the first time since 2007.
Its outlier policy of zero interest rates and extensive asset purchases was aimed at resuming economic development and price increases in Japan after “lost decades” of stagnation and deflation — the polar opposite of the recent situation experienced by most developed nations.
Turkey’s central bank also resumed its tightening cycle on Thursday, citing “the deterioration in the inflation outlook”.
The bank’s monetary policy committee voted to boost the policy rate to 50% from 45 percent. Turkey’s annual inflation rate rose to more than 67 percent in February.