The Strategist

Unveiling the impact: SNB's rate cut ripples through Swiss franc's value

The Swiss franc has weakened following the Swiss National Bank's decision to lower the policy rate ahead of the European Central Bank and the US Federal Reserve. The SNB's move takes into account reduced inflationary pressures and the appreciation of the Swiss franc in recent quarters. The rate cut is aimed at supporting economic activity and maintaining favourable monetary conditions. 

Sebastian Petric, LGT Senior FX Strategist
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The Strategist SNB senkt Leitzins
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The Swiss National Bank (SNB) has announced that it will lower its key interest rate by 0.25 percentage points to 1.5%, effective from 22 March 2024. With this rate cut, the SNB aims to provide support for economic activity and ensure favourable monetary conditions. The timing of the rate cut marks a critical turning point for the Swiss franc, as it becomes clear which path has been chosen. As a result, the currency is currently losing its strength, making it potentially vulnerable in the coming weeks.

SNB ready to intervene in the event of volatility, inflation stable

In addition to cutting interest rates, the SNB has expressed its willingness to intervene in the foreign exchange market in the event of extreme volatility. This demonstrates its commitment to maintaining stability in the currency markets.

The decision to lower the key interest rate was made possible by the successful efforts to combat inflation in recent years. Inflation has remained below 2%, in line with the SNB's objective of achieving price stability. According to the SNB's latest projections, inflation will remain within this target range for the foreseeable future. The decline in inflation can be attributed to lower prices for goods, although there is still some inflationary pressure stemming from higher prices for domestic services.

Uncertainty remains, potential challenges for the Swiss franc

The growth outlook for both Switzerland and the global economy remains highly uncertain. The main risk lies in the possibility of weaker economic activity abroad.

In summary, the Swiss franc has weakened following the SNB's decision to lower the policy rate ahead of the ECB and the Fed. This decision takes into account reduced inflationary pressures and the real appreciation of the Swiss franc over the past year. The rate cut aims to support economic activity and maintain favourable monetary conditions. The current situation suggests that the Swiss franc may face challenges in the coming weeks. 

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