The National Bank (SNB) has lowered the policy rate by 25 basis points to 1,25 percent. The underlying inflationary pressure has decreased again compared to the previous quarter, according to the announcement on the interest rate decision.

With this renewed cut, the National Bank maintains that the monetary conditions are «appropriate.» It will continue to closely monitor inflation developments and adjust monetary policy if necessary.

Since the last assessment, inflation has slightly increased and stood at 1,4 percent in May. This rise was mainly due to higher prices for rents, tourism services, and petroleum products. Overall, the current inflation in Switzerland is primarily driven by the price increase in domestic services, the statement continues.

Slightly Lower Inflation Expectation

The SNB has slightly lowered its inflation forecast. For the current year, an average inflation rate of around 1,3 percent is expected. For 2025, 1,1 percent and for 2026, 1,0 percent are expected

(Graph: BFS/SNB)

Foreign inflationary pressure is expected to gradually decrease over the next few quarters. At the same time, the global economy is likely to recover somewhat.

In Switzerland, the gross domestic product (GDP) grew moderately in the first quarter of 2024. The service sector continued to expand, while industrial output stagnated. Unemployment rose slightly. Overall, the economy's production capacities were normally utilized.

Moderate Growth

Moderate growth is expected to continue in Switzerland in the coming quarters. The SNB expects GDP growth of around 1 percent for this year and 1,5 percent for the next year.

In this environment, unemployment is likely to rise slightly in 2024, and the utilization of production capacities is expected to decrease slightly. In the medium term, economic development should gradually improve, supported by somewhat stronger foreign demand.

Strengthened Currency as the Main Reason

«As in March, we see the strengthened currency as the main reason for the step,» writes Philipp Burckhardt of Lombard Odier in a commentary. «Economic indicators have developed better since March, while inflation has weakened.»

Arthur Jurus of Oddo BHF sees no surprises in the SNB's forecasts. The cut will have no impact on the Swiss franc-euro exchange rate. «Uncertainty about the global economy and political challenges in Europe remain exogenous risks. For the SNB, this risk concerns an excessive appreciation of the Swiss franc, which would be accompanied by a decline in import prices,» he states in a commentary.

«The SNB is reacting to the European Central Bank (ECB), which also lowered its key interest rate in June 2024,» writes Postfinance CIO Philipp Merkt. «Otherwise, the interest rate differential would have widened, which would tend to increase the appreciation pressure on the Swiss franc.»