SNB cuts key policy rate by 50 bps to 0.50% from 1.00% previously

• Prior 1.00%
• Prepared to intervene in FX market as necessary
• Underlying inflationary pressure has decreased again this quarter
• Uncertainty on the economic outlook has increased in recent months
• Forecast for Switzerland and global economy is subject to significant uncertainty
• Will continue to monitor the situation closely and adjust monetary policy as necessary
• Sees 2024 Swiss economic growth at around 1.0% (unchanged)
• Sees 2025 Swiss economic growth at around 1.5% (unchanged)
• Sees 2024 inflation at 1.1% (previously 1.2%)
• Sees 2025 inflation at 0.3% (previously 0.6%)
• Sees 2026 inflation at 0.8% (previously 0.7%)
• Full statement

Despite expectations of a 25 bps rate cut, the market odds coming into the meeting reflected a ~58% probability of a 50 bps move with the remainder tied to a 25 bps move. The Swiss franc has fallen on the decision with USD/CHF quickly up from 0.8825 before to 0.8890 currently.

In terms of policy language, the SNB has removed this particular passage from September:

“Further cuts in the SNB policy rate may
become necessary in the coming quarters to ensure price stability over the medium term.”

They have instead replaced it with this:

“The SNB will continue to monitor
the situation closely, and will adjust its monetary policy if necessary to ensure inflation
remains within the range consistent with price stability over the medium term.”

They may perhaps will still feel the need to cut one more time next year but could afford to wait until mid-2025 maybe. The fact that they’re switching up the language should take a bit of the sting off the Swiss franc, which is sent lower on the decision.

This article was written by Justin Low at www.forexlive.com.