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Switzerland cuts interest rates to 0%

A week of central bank decisions continued Thursday with Switzerland cutting rates in line with market expectations. Meanwhile, the Bank of England (BOE) and People’s Bank of China (PBOC) held rates steady. Norges Bank surprised markets with a cut to its policy rate by 25 basis points, citing easing inflation. Asian stock markets were trading mostly higher on Friday, while European markets slipped the day before. US markets were closed for a public holiday on Thursday. Gold prices edged lower, trading around USD 3350 per ounce, despite heightened uncertainty surrounding US President Donald Trump’s next move in the Israel-Iran conflict.

  • Date
  • Author Shane Strowmatt, LGT
  • Reading time 5 minutes

SNB with Swiss flag
© Shutterstock

The Swiss National Bank (SNB) reduced its interest rate by 25 basis points to 0% on Thursday, responding to deflationary pressures after consumer prices fell by 0.1% year-on-year in May. The move, widely anticipated by markets, aims to counter the impact of the strong Swiss franc, which has suppressed the cost of imports. Economists warn that further rate cuts into negative territory may follow if inflationary pressures fail to materialise, with potential risks to financial stability and bank margins. The franc strengthened immediately following the decision, highlighting ongoing challenges for the central bank.

Asia-Pacific markets mostly rise as China holds rates steady

The PBOC kept its 1-year loan prime rate at 3.0% and 5-year rate at 3.5% on Friday, following last month's rate cuts aimed at mitigating trade tensions with the US. The recent trade agreement has eased growth concerns, stabilising the Chinese yuan and reducing pressure on monetary policy. Hong Kong’s Hang Seng Index climbed 1% and mainland China’s CSI 300 added 0.2% on Friday. South Korea’s Kospi crossed the 3000 mark for the first time since January 2022, rising 1.1%, while Australia’s S&P/ASX 200 slipped 0.3%

Japan's core inflation reaches 2-year high

Japan's core consumer price index (CPI) rose 3.7% year-on-year in May, exceeding market expectations and marking its fastest pace since January 2023. The increase, driven by surging food prices, has kept inflation above the Bank of Japan's 2% target for over three years, raising the likelihood of further interest rate hikes. A separate index excluding fresh food and fuel rose 3.3%, highlighting persistent domestic inflation pressures. However, the Bank of Japan faces challenges balancing rising costs, US tariff risks, and a fragile economy, with policymakers divided on the future inflation outlook. Japan’s Nikkei 225 was little changed on Friday.

Bank of England holds interest rates steady

The BOE maintained its key interest rate at 4.25% during its Thursday meeting, with six of nine monetary policy committee members voting to hold rates steady. The decision reflects concerns over weak UK economic growth, a loosening labour market, and elevated global uncertainties, including rising energy prices due to Middle East conflicts. The market anticipates a 25-basis-point rate cut in August, as inflation remains above the 2% target.

Norway cuts interest rates amid easing inflation

Norway's central bank unexpectedly reduced its policy interest rate by 25 basis points to 4.25% on Thursday, marking its first cut since 2020, as inflation eased faster than anticipated. Norges Bank signalled further reductions this year, potentially lowering rates to 4.0% or 3.75%, with a long-term target of 3% by 2028. The Norwegian crown initially weakened against the euro but later recovered.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Accenture. Annual general meeting at Mitsubishi.

Economic data in focus: UK retail sales (08:00), German Producer Price Index (08:00), European Commission Economic Bulletin (10:00), Philadelphia Federal Reserve Manufacturing Index (14:30), Canadian retail sales (14:30), euro-area consumer confidence (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.