The Swiss National Bank on Thursday, September 26, adopted the third decision since the beginning of the current year to ease monetary policy.
The mentioned country’s financial regulator lowered its key interest rate by 25 basis points. Currently, the corresponding indicator is at 1%.
It is worth noting that the vast majority of analysts interviewed by the media predicted that the Swiss National Bank would decide in September to continue implementing measures to ease monetary policy. For this reason, the statement of the financial regulator on the lowering of the cost of borrowing, made on Thursday, did not come as a surprise.
It is also worth noting that the Swiss National Bank became the first major central bank from Western countries to begin implementing a strategy to ease monetary policy. The country’s financial regulator started cutting interest rates in March.
Special attention should be paid to the fact that monetary policy easing is currently what can be described as a kind of global tendency among the world’s central banks. In September, the relevant decision was made by the Federal Reserve System. This decision by the US financial regulator was long-awaited. The central bank of the United States cut interest rates by 50 basis points. This decision by the Fed exceeded initial expectations regarding the scope of the first phase of monetary policy easing. Also in September, the European Central Bank cut the deposit rate by 25 basis points. It is worth noting that this is the second such decision of this financial regulator in the current year. The European Central Bank began easing monetary policy in June.
Switzerland currently has a low inflation rate. Recent data indicate that. that in August, prices for goods and services in this country showed an increase of 1.1%.
The Swiss franc is currently on a strengthening trajectory against major currencies. The corresponding dynamic is greatly facilitated by the decision of the central bank of this country on the next move to ease monetary policy. The US dollar and the euro fell by almost 0.14% and 0.16%, respectively, against the Swiss currency. It is worth noting that these figures coincide with the preliminary forecasts of ING analysts. The mentioned experts predicted that the decision on the next interest rates’ cut by the Swiss National Bank would be a factor in strengthening the franc. In this case, expectations and reality coincided.
It is worth mentioning that in August, against the background of the strengthening of the Swiss currency, the technology manufacturers’ group Swissmem, one of the largest associations in the country, entreated the local financial regulator to act as soon as possible following the mandate. In this case, it was separately noted that intensity would help ease the pressures that are a deterrent to Swiss business.
Swissmem underlined that a renewed exacerbation is observed at a time when one of the main export industries is going through a sensitive period. At the same time, it was separately noted that certain signs of recovery are already showing, but the lack of measures to curb upside pressure may actually cancel out the positive prospects.
Currently, more than 1,250 companies are members of Swissmem. In this case, it means, for example, ABB, a manufacturer of equipment in the areas of electrical engineering, energy engineering, and information technology. Also one of the members of the association is Bucher, which operates in the industrially related markets of mechanical and vehicle engineering. Moreover, Swissmen includes Bühler, a manufacturer of equipment for factories. It is worth noting that more than 85% of the association’s members are representatives of the small and medium-sized business sector.
The Swiss National Bank acknowledged the existence of the tendency of franc growth, noting that the corresponding process is large-scale. The financial regulator also noted on Thursday that the mentioned circumstance has become one of the most significant factors in deciding on the next stage of monetary policy easing.
In an official statement, the Swiss central bank underlined that inflationary pressure in the country shows a significant decrease compared to those indicators that were observed last quarter. This statement also notes that the decision to continue easing monetary policy takes into account the mentioned fact of the current configuration of economic reality. The financial regulator underlined that the specified decrease in inflationary pressure, among other things, reflects the strengthening of the franc observed over the past three months.
The Swiss National Bank also stated that the need for further cutting the policy rate may be formed in the coming quarters. In this context, it was noted that an appropriate solution could become an effective tool for ensuring price stability in the medium term.
Kyle Chapman, FX markets analyst at Ballinger Group, said that this year the Swiss National Bank has consistently been behind its forecasts for the dynamic of the inflationary process. The expert noted that the financial regulator, within the framework of the relevant forecasts, formed such a vision of the scenarios of the future, which was based on lower rates. Kyle Chapman also said that the forecast of the Swiss National Bank, according to which inflation in the country next year will be fixed at 0.6%, is probably too close. In the relevant context, the expert separately noted that the financial regulator is striving to return to deflation.
Kyle Chapman expects that at the very least in December and March, the Swiss National Bank will cut interest rates by 25 basis points. The expert explains this vision by the fact that currently there are no short-term sources of depreciation of the franc without a stronger stance of the financial regulator concerning to interventions.
Chairman of the Swiss National Bank Thomas Jordan, who will step down from his post before the end of the current month, on Thursday, during a conversation with media representatives, said that the financial regulator’s forecast for inflation still remains within the range of price stability. In this context, he noted that against the background of the mentioned fact, there is no risk of implementing a deflation scenario shortly. Thomas Jordan also stated that the Swiss National Bank may face the need for another lowering of borrowing costs to retain inflation in the target range of 0-2%.
Adrian Prettejohn, Europe economist at Capital Economics, noted that in the communique of the mentioned financial regulator suggested that the institution’s policymakers most likely did not use the mechanism of forex intervention to a significant extent, but may soon apply appropriate measures. The expert predicts that the Swiss National Bank will begin to consider the possibility of significant use of the mentioned mechanism when the policy rate drops to about 0.5%. According to Adrian Prettejohn, under the appropriate condition, the financial regulator will make a more balanced decision on the extent to which it should rely on currency interventions instead of further lowering the cost of borrowing to provide the support of monetary policy.
