In its monetary policy assessment of 20 June 2024, the Swiss National Bank (SNB) decided to cut its policy rate to 1.25 percent. This is the second time it has eased monetary policy this year.
Philipp Merkt, Chief Investment Officer (CIO) at PostFinance, believes that by cutting interest rates again, the SNB is continuing its monetary policy stance of recent months:
The arguments which the SNB presented when it made the first cut to interest rates in March 2024 are still valid today and support further monetary easing.
On one hand, Swiss inflation appears to have been brought under control on a sustained basis. Inflation rates have stabilized at between 1.0 and 1.5 percent in recent months and there are no concerns over another sharp rise at the moment. On the other, the Swiss economy – which the SNB is focusing on more heavily again due to lower inflationary pressure – remains weak. Particularly in the export-oriented industrial sector, there has not yet been a recovery from the sharp downturn of the past two years. Philipp Merkt believes the main reason for the SNB’s decision to cut interest rates is to protect the Swiss franc from rising excessively, and, in turn, to support the export industry:
The SNB’s decision was in response to the European Central Bank (ECB), which also cut its policy rate in June 2024. Otherwise the interest gap would have widened, which tends to increase upward pressure on the Swiss franc. That would essentially have wiped out the impact of the SNB’s interest rate cut in March 2024.
However, scope for lowering interest rates again is now limited. SNB is likely to be mindful of not returning to zero interest rates. Otherwise its room for manoeuvre in any future crisis would be severely limited.
Chief Investment Officer
