The Swiss National Bank (SNB) has reduced its key policy rate by 25 basis points for the third consecutive meeting, citing the contraction in inflationary pressure due to the franc's strength.
At Thomas Jordan's final rate-setting meeting as chairman, the policy board lowered the rate from 1.25% to 1.0%, in line with expectations. Banks' sight deposits held at the SNB will accrue interest at the policy rate up to a designated threshold, with an additional 0.5% applied above this threshold, according to the bank.
"Further reductions in the SNB policy rate may be necessary in the coming quarters to ensure medium-term price stability," the bank mentioned in a statement.
Economist Adrian Prettejohn from Capital Economics noted the probability of at least two more rate cuts, likely by another 25 basis points in both December and March. Despite ongoing concerns about the franc's impact on inflation, the central bank did not indicate any plans for foreign exchange interventions to regulate the franc's value.
The current inflation is largely driven by higher costs for domestic services. The SNB revised its inflation forecast downward, attributing this to the stronger franc, the declining oil prices, and announced reductions in electricity prices for January.
Inflation for this year is now projected at 1.2%, a slight decrease from the previous forecast of 1.3%. For 2025, the estimate has been reduced to 0.6% from 1.1%, and the 2026 projection has been adjusted to 0.7% from the 1.0% forecast in June.
Regarding economic growth, the bank forecast a moderate pace due to the recent appreciation of the Swiss franc and a tepid global economic environment. Economic growth is expected to be around 1% this year, consistent with previous estimates, with a projected growth of approximately 1.5% in 2025.
