The SNB has reduced the policy rate by 50 basis points, from 1,00 percent to 0,50 percent. «Underlying inflationary pressure has decreased further this quarter. With today's monetary policy easing, the National Bank is responding to this development,» the central bank stated in its press release on the monetary policy assessment.

Inflation in Switzerland remains clearly below the upper limit of the target range of 0 to 2 percent. Although inflation rose slightly in November to 0,7 percent compared to the same month last year—up from 0,6 percent in October, according to figures from the Federal Statistical Office—it remains very low.

Further Decline in Inflation Expected

The SNB's new forecast places inflation within the range of price stability for the entire forecast period. Inflation is projected to average 1,1 percent in 2024, 0,3 percent in 2025, and 0,8 percent in 2026. The forecast assumes that the policy rate will remain at 0,5 percent throughout the forecast period. Back in September, the inflation estimate for the coming year was sharply revised down from 1,1 percent to 0,6 percent.

The central bank also considered the exchange rate of the Swiss franc when setting the interest rate. Currently, the franc is trading at 0,9288 to the euro and 0,8839 to the dollar. A depreciation of the franc is in the interest of the Swiss export industry. On the other hand, imported inflation from higher-priced goods abroad is not a significant concern at present. Inflation in the eurozone has also eased significantly in recent months.

Subdued Economic Growth

Switzerland's gross domestic product (GDP) grew only modestly in the third quarter of 2024, as expected, the SNB noted further. For the current year, GDP growth is expected to reach about 1 percent, with growth projected between 1 and 1,5 percent for 2025. In this environment, unemployment is likely to rise slightly, while the utilization of production capacities is expected to decline somewhat.

At midday, the Governing Council of the European Central Bank, led by President Christine Lagarde, will decide on interest rates in the eurozone. Most economists expect a rate cut of 25 basis points, bringing the deposit rate to 3,00 percent.

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