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Swiss central bank cuts rate for second straight time

The Swiss National Bank (SNB) announced Thursday its second straight interest-rate cut, after becoming in March the first Western central bank to slash borrowing costs that had been raised to battle inflation.

Published: 20 June 2024 12:34 CEST

Swiss central bank cuts rate for second straight time

Swiss National Bank lowered its interest again. Photo by Fabrice COFFRINI / AFP)

The SNB said in a statement that it was lowering the policy rate by 0.25 percentage points to 1.25 percent.

The bank also lowered its average annual inflation forecast for 2024 to 1.3 percent from 1.4 percent previously.

“The underlying inflationary pressure has decreased again compared to the previous quarter,” the statement said.

“With today’s lowering of the SNB policy rate, the SNB is able to maintain appropriate monetary conditions.”

Analysts had been divided about whether the bank would cut rates again or stand pat as inflation had risen again in April and May, reaching 1.4 percent, after falling to 1.0 percent in March.

Central banks worldwide ramped up borrowing costs in recent years to control inflation, which surged when economies emerged from Covid pandemic lockdowns and accelerated after energy producer Russia invaded agricultural power Ukraine in early February 2022.

Since the SNB’s March decision, the European Central Bank followed suit in June while the US Federal Reserve is expected to introduce only one rate cut later this year.

The Bank of England is widely expected to keep its rates unchanged later on Thursday, a similar decision taken by Norway’s central bank earlier in the day.

Member comments

Anonymous - 20 June 2024 at 12:51 CEST

Does this mean rents will be updated?

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What does the latest interest rate cut in Switzerland mean for you?

After cutting the interest rate in March 2024 — from 1.75 to 1.50 percent — Switzerland’s central bank slashed the rate by another quarter percent to bring it down to 1.25.

Is this a good sign?

Mostly yes.

Firstly, it signals that inflation has fallen — which is definitely a positive development.

The SNB, did, in fact, lower its average annual inflation forecast for the rest of 2024 — to 1.3 percent, from 1.4 percent previously.

How will you be able to benefit from this move?

Much depends on whether you are planning to spend your money or save it.

If you are looking to buy big-ticket items that are usually purchased with credit — like homes or vehicles, for instance — then you are in luck.

That’s because when a central bank lowers its interest rates, loans become cheaper. So if you qualify for a loan, this is a good time to apply for one.

In terms of mortgages, they are likely to become cheaper as well when interest rates drop.

This, however, is only the case for new mortgages or ones that are due for renewal.

If you have a fixed-rate mortgage which is not up for renewal, then you will not be able to benefit from lower interest rates.

What about rents?

With the interest rate turnaround — and given a positive forecast on the inflation front — there will probably be no further hikes in the reference interest rates that determine rents in the immediate future.

As to whether you are eligible for rent reduction, that depends on whether your rent is tied to the interest rate — as some 54 percent of contracts are in Switzerland.

If that is the case, and your costs went up when the interest rate did, you can normally seek a reduction.

Keep in mind, however, that factors other than the interest rate come into play in determining rents.

Such factors could include an increase in the cost of building maintenance or insurance, for example.

When is a lower interest rate not a good thing?

If you have money in the bank and depend on it ‘growing’ — that is, yielding profits, you are not in luck.

As the interest rate dwindle, so do returns on your assets.

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