SNB Cuts Rate by Surprise Half Point to Stem Gains in Franc
(Bloomberg) -- The Swiss National Bank delivered a bigger-than-expected 50 basis-point interest-rate cut, a move that might help stem gains in the franc.
Most Read from Bloomberg
Officials lowered their key benchmark to 0.5% on Thursday, a step expected only by a small minority of economists surveyed by Bloomberg. Most anticipated only a quarter-point move.
The Swiss franc fell against the euro to its lowest level since Nov. 25. It dropped around 0.6% to 0.9344 per euro after the decision, pulling further away from a near-decade high hit against the euro last month.
“Policy rate cuts continue to be our main instrument should monetary policy have to be eased further,” SNB chief Martin Schlegel told reporters in Bern. “At the same time, we remain willing to intervene in the foreign exchange market as necessary.”
The central bank’s biggest reduction in the current cycle amounts to a show of force at Schlegel’s first decision as president, aiming to unsettle traders who have plowed money into the franc in recognition of its traditional role as a haven at times of geopolitical stress.
Given the advent of Donald Trump’s presidency in January, ongoing political uncertainty in Paris and Berlin, and wars raging across the Middle East and in Ukraine, the prospect of further market tensions fueled by investors seeking safety for their assets remains a tangible risk for the SNB.
While the half-point move undermines the currency’s attractiveness to speculators, it also uses up precious ammunition. Borrowing costs are now only two quarter-point steps away from zero. Reaching that would leave officials on the cusp of choosing between market interventions to stem franc gains or else going negative — options which each come at a cost.
Asked about the depth of his policy arsenal, Schlegel told reporters that policymakers “still have ammunition left.” He also said that Thursday’s decision made a return to sub-zero interest rates less likely.
The SNB also tweaked its reference to further moves. Having said in September that “further cuts” in the rate “may become necessary,” officials now instead say that the central bank may “adjust its monetary policy if necessary.” Similar changes in wording are not unusual in such statements.
Having brought down borrowing costs at all four meetings of 2024 to one of the world’s lowest levels, the central bank’s rate is already back at the point it reached in September 2022, when it ended almost eight years of subzero monetary policy.