Oil price was the decisive factor SNB cuts key interest rate significantly by 0.50 basis points

The Swiss National Bank has lowered its key interest rate once again. The SNB key interest rate has fallen by 0.50 percentage points and now stands at 0.50 percent.

The Swiss National Bank (SNB) cuts the key interest rate surprisingly significantly by 50 basis points to 0.50 percent. And even with the lowered key interest rate, it assumes that inflation will be lower in 2025. Further interest rate cuts are therefore possible.

According to the SNB, price stability, i.e. inflation of 0 to a maximum of 2 percent, is guaranteed with the key interest rate cut to 0.50 percent. For 2025, inflation is only expected to reach 0.3 percent, compared to 0.6 percent in September - with a key interest rate of 1.00 percent. The forecast for 2026 is now 0.8 percent instead of 0.7 percent.

According to the SNB communiqué issued on Thursday, inflation has once again been lower than expected since the last monetary policy assessment. The lowered forecast for 2025 primarily reflects the lower than expected inflation for oil products and food.

Lower inflationary pressure

"With our current easing of monetary policy, we are counteracting the lower inflationary pressure", said SNB Chairman Martin Schlegel according to the speech text. The SNB's forecasts are always based on the assumption that the SNB policy rate will remain at the current interest rate level over the entire forecast period.

Relatively low inflation forecasts therefore also increase the scope for the monetary authorities to cut interest rates further. Without today's interest rate cut, the conditional inflation forecast would be even lower, the monetary authorities emphasized.

"We will continue to monitor the situation closely and adjust monetary policy if necessary to ensure that inflation remains within the price stability range in the medium term," Schlegel continued. Uncertainty regarding the development of inflation remains high, with the development of the Swiss franc remaining an important factor.

And the new SNB Chairman emphasized: "Interest rate cuts remain our main instrument if monetary policy needs to be loosened further." At the same time, however, the SNB remains prepared to intervene in the foreign exchange market if necessary.

Slightly lower growth forecast

The SNB is sticking to its previous assessment of economic growth for the current year. It continues to forecast growth in gross domestic product (GDP) of around 1%. For 2025, it still expects growth of between 1 and 1.5 percent. In September, the forecast was still around 1.5 percent.

The downward revision is justified by the only moderate foreign economy. According to the SNB, unemployment should continue to rise slightly in this environment, while utilization of production capacity should fall somewhat.

The impact of interest rate cuts

Lower key interest rates mean that savings deposits will yield less in the medium term. Property owners, on the other hand, can hope for cheaper mortgage loans.

If key interest rates continue to fall, tenants will also benefit. If the SNB's interest rate affects the Confederation's mortgage reference rate, those tenants whose rent is based on the higher reference rate are entitled to a reduction in their payment to the owner.

Low interest rates generally stimulate the economy, as companies can obtain capital more cheaply. This is why interest rate cuts are also seen as good news on the stock market and for share owners, often causing prices to rise.

Meanwhile, many economists agree that further cuts will follow in 2025, regardless of the amount of the upcoming reduction. Negative interest rates cannot be ruled out in the medium term either.

SDA/smi