Swiss Central Bank Lowers Interest Rates To Zero
In a move that has surprised many economists, Switzerland’s central bank has lowered its trendsetting interest rate to zero.
Saying inflationary pressures have eased considerably, the Swiss National Bank reduced its target interest rate by 0.25%, taking the key rate to 0%.
The central bank noted that inflation in Switzerland fell into negative territory in May, necessitating an interest rate cut to boost the country’s economic activity.
The move by the Swiss Central Bank comes a day after the U.S. Federal Reserve elected to hold its key interest rate at its current range of 4.25% to 4.50%, where it has been since December of last year.
The Bank of England is expected to keep interest rates on hold at the conclusion of its latest policy meeting on June 19.
Central banks around the world, including in Canada, are struggling with monetary policy at a time when economic activity is slowing but political instability is on the rise.
Escalating conflicts in Ukraine and the Middle East, coupled with uncertain U.S. import tariffs, have rattled financial markets and clouded the outlook for central bank officials.
However, in Switzerland, the picture appears a bit clearer as the economy and inflation decline.
The Swiss National Bank attributes the drop in inflation to declining prices in the country’s tourism sector, as well to weak oil prices in recent months.
The Swiss central bank now projects annual inflation at 0.2% this year, before edging up to a half-point next year and 0.7% in 2027.
Given the mild inflation outlook, the Swiss National Bank said it expects its target interest rate will remain at zero over the coming two years.
“In its baseline scenario, the SNB anticipates that growth in the global economy will weaken over the coming quarters,” wrote the Swiss Central Bank in its economic forecast.
Switzerland did enjoy strong economic growth in this year’s first quarter.
However, that Q1 growth was largely due to exports to the U.S. being brought forward as companies sought to get ahead of American tariffs, said the Swiss National Bank.
