Rate Cuts Loom as Swiss Economy Looks Set for Slow Growth

The Swiss franc weakened after the announcement, with the Euro gaining 0.3% and the U.S. dollar up 0.5% against the Swiss currency at 8:55 a.m. London time. Following the decision, the Swiss central bank forecasted inflation at 1.3% for 2024, 1.1% for 2025, and 1.0% for 2026, assuming a SNB interest rate of 1.25%. In May, Switzerland’s inflation remained flat at 1.4%, following a bump up in April, and is expected to average the same level throughout 2024.

The Swiss bank predicted economic growth of around 1% this year and 1.5% in 2025, with slight increases in unemployment and small declines in production capacity utilization rates.

Analysts at Nomura suggested that a rate cut could be possible in June based on weak underlying inflation momentum.

Switzerland currently has the second-lowest interest rate among the Group of Ten democracies after Japan.

The SNB was the first major economy to cut interest rates in late March before being followed by the European Central Bank earlier this month.

Speculation is mounting over whether Switzerland will proceed with a third rate cut this year based on its inflation forecast.

Kyle Chapman, an FX markets analyst at Ballinger Group, believes that Switzerland’s position as one of several countries to announce cuts could make it vulnerable to further fluctuations in foreign exchange markets.

Observers are watching to see if other countries will follow suit with cutting their own interest rates, including U.S., UK or any other country that may affect global economies significantly