Bombay Durpun - Swiss central bank announces big rate cut to boost economy

The Swiss National Bank (SNB) lowered its main rate by a half-percentage-point to 0.5 percent, its fourth cut since March as inflation has slowed in the country.

Economic growth was "only moderate" in the third quarter and is forecast to reach 1.0 percent in 2024 and 1.5 percent next year, the SNB said in a statement.

"Growth should pick up somewhat next year, albeit only slightly due to the moderate global economic activity", the Swiss National Bank (SNB) said in a statement.

The SNB announcement sent the Swiss franc falling 0.3 percent against the dollar and the euro.

The SNB also pointed to the uncertain economic situation.

"Uncertainty about the economic outlook has increased in recent months. In particular, the future course of economic policy in the US is still uncertain, and political uncertainty has also risen in Europe," it said.

"In addition, geopolitical tensions could result in weaker development of global economic activity. Equally, it cannot be ruled out that inflation could remain higher than expected in some countries."

Donald Trump takes office in January after vowing to slap tariffs on imports to the United States during the election campaign, a move that raises concern about its effect on the global economy.

For now, markets do not have "a very clear idea" of what the Trump administration intends to do," SNB vice president Antoine Martin said at a press conference in Bern.

The potential repercussions on inflation from Trump's tariff plans "remain unclear" for the moment, he added.

"Political uncertainty has also increased in Europe," Martin said.

Early elections are due to take place in Germany in February following the collapse of the coalition government led by German Chancellor Olaf Scholz.

In France, President Emmanuel Macron is due to name a new prime minister after MPs toppled the government last week.

- More cuts coming -

The SNB lowered its inflation forecast for 2024 to 1.1 percent and to 0.3 percent for 2025.

"In the September review, we indicated that further easing of monetary policy could be necessary," SNB president Martin Schlegel said at a news conference in Bern.

"Since then, inflation has fallen again," added Schlegel, who took over the reins of the SNB in October.

Most economists expected the SNB to make a smaller, 25-basis-point cut to interest rates.

Thursday's announcement "came as a surprise to most economists", said Adrian Prettejohn, Europe economist at Capital Economics research group.

The move "was balanced by a revised policy statement which implies that policymakers expect this to be the final rate cut of the cycle as it removed any mention of further cuts," he added.

"We still expect at least one more rate cut next year, as we think policymakers will be forced to revise down their expectations for inflation over their forecast horizon," Prettejohn said.

Inflation is much lower in Switzerland than in the eurozone, where the European Central Bank is expected to make a rate cut of 0.25 percentage points on Thursday.

Consumer prices rose by 0.7 percent in Switzerland on an annual basis in November compared to 2.3 percent in the eurozone.

Swiss inflation is expected to slow further as electricity prices are due to fall in January.

W.Atwal--BD