The Swiss National Bank’s bold rate cut on Thursday sent ripples through global financial markets, marking the first major central bank in the developed world to pivot decisively toward monetary easing. In a move that surprised many analysts with its magnitude, Switzerland slashed its policy rate by 50 basis points to 0%, ending its brief experiment with positive interest rates that began just last year.
This decisive action comes as Swiss inflation has consistently undershot the central bank’s 2% target, registering at just 1.0% in August. SNB Chairman Thomas Jordan emphasized the bank’s confidence that inflation will remain well contained within its target range over the coming years, providing the necessary justification for such an aggressive cut.
“The easing of our monetary policy has been made possible by the successful fight against inflation,” Jordan told reporters in Zurich. “The current economic outlook allows for this significant adjustment without compromising price stability.”
The move represents a striking contrast to other major central banks. While the European Central Bank made a modest 25 basis point cut last week and the Federal Reserve followed with its first pandemic-era reduction on Wednesday, Switzerland’s half-percentage-point cut signals a much more confident stance on inflation’s retreat.
Market reaction was immediate and substantial. The Swiss franc tumbled against major currencies, with EUR/CHF jumping to its highest level since 2021. Swiss stocks rallied sharply, with the SMI index gaining over 1% following the announcement as investors anticipated the economic stimulus effect of lower borrowing costs.
For Swiss homeowners and businesses, the return to zero interest rates brings welcome relief after the brief period of positive rates that began in June 2023, ending nearly a decade of negative rates that had been a hallmark of Swiss monetary policy. Mortgage rates, which had climbed significantly over the past year, are expected to decline in response.
“This is clearly positive news for the Swiss economy,” noted Maxime Botteron, economist at Credit Suisse. “The strong franc has been a headwind for exporters, and this decisive cut should help ease some of that pressure while supporting domestic economic activity.”
Switzerland’s economic context makes this move particularly noteworthy. Unlike many economies still grappling with elevated inflation, Switzerland has faced the opposite challenge. The persistent strength of the Swiss franc – long considered a safe-haven currency – has exerted significant downward pressure on import prices and overall inflation.
The SNB’s forecasts now project inflation to average just 0.6% in 2025 and 0.7% in 2026, well below its 2% target ceiling. This outlook gives the central bank substantial room for monetary easing without risking an inflation resurgence.
Jordan also signaled that further cuts remain possible if economic conditions warrant them. “We will continue to monitor developments closely and adjust our monetary policy as necessary to ensure price stability in the medium term,” he said.
For global investors, Switzerland’s move may foreshadow similar actions by other central banks as inflation pressures continue to ease worldwide. While few expect the Fed or ECB to match Switzerland’s aggressive stance in the near term, the SNB’s decision adds momentum to the global monetary easing cycle.
The Swiss economy is projected to grow modestly at 1% this year according to the SNB’s updated forecast, slower than previously expected but still representing stable expansion. The central bank noted that global economic uncertainty and ongoing geopolitical tensions continue to pose risks to the outlook.
Switzerland’s decision underscores the increasing divergence in global monetary policies, with each central bank responding to its unique economic circumstances. For Switzerland, the combination of subdued inflation, a strong currency, and moderate growth has created the perfect conditions for this bold step toward monetary accommodation.
As Jordan concluded: “Our primary mandate is maintaining price stability, and we now have the opportunity to support economic growth without compromising that objective. The Swiss economy can benefit from more accommodative conditions while inflation remains well anchored.”
