Swiss National Bank cuts policy rate further as low inflation persists

Euronews

20-03-2025

The Swiss National Bank (SNB) slashed its benchmark interest rate by 25 basis points to 0.25% on Thursday. The cut was in line with market expectations, amid ongoing economic uncertainty and low inflation. It also marks the first time the bank has lowered its rate since a surprise 50-basis-point cut in December last year.
Swiss inflation fell from 0.7% year-on-year in November 2024 to 0.3% in February this year, primarily because of dropping electricity prices. This was despite higher domestic services prices which somewhat offset the decrease.
The SNB predicts that inflation will touch around 0.4% this year, before averaging approximately 0.8% both next year and in 2027. That's based on the assumption that the policy rate remains at 0.25%.
The central bank said in a press release: 'With today's rate adjustment, the SNB is ensuring that monetary conditions remain appropriate, given the low inflationary pressure and the heightened downside risks to inflation. The SNB will continue to monitor the situation closely and adjust its monetary policy if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term.'
Swiss stocks were upbeat on Thursday morning, with healthcare giant Roche up 0.2% on the SIX Swiss Exchange, and Nestlé also rising 0.5% on the same exchange. Pharmaceutical giant Novartis also advanced 0.6% on the SIX Swiss Exchange on Thursday morning.
Switzerland's State Secretariat for Economic Affairs (SECO) recently slashed its growth outlook for the Swiss economy.
SECO said in a press release this week: 'The Federal Government Expert Group on Business Cycles has slightly lowered its growth forecast for the Swiss economy. In 2025, GDP adjusted for sporting events is expected to grow by 1.4%, followed by 1.6% in 2026 (December forecasts: 1.5% and 1.7% respectively).'
'This would mean the Swiss economy would continue to grow below its historical average for another two years.'
The Swiss economy's historical average growth has been 1.8%.
The updated forecast from SECO is based on the assumption that there will be no escalating global trade war, although the body acknowledged that 'uncertainty surrounding international economic and trade policy and their macroeconomic consequences remains exceptionally high'.
Experts noted that in a more negative trade situation, in which global economic activity decreases more, Swiss domestic growth and exports are likely to be considerably impacted. On the other hand, a more positive economic situation, boosted by Germany's newly-approved large fiscal package, would go a long way in supporting the Swiss economy and exports.
Global consultancy firm Roland Berger also expects a sport-event adjusted growth rate of 1.4% for the Swiss economy in 2025.
'Propelled by easing inflation and lower interest rates, consumer spending is set to rise and investment is expected to rebound in 2025. However, mounting geopolitical uncertainty and a shift towards protectionism are likely to bolster the Swiss franc further - a development that could dampen export growth,' the company said.
Roland Berger also pointed out that Swiss economic growth was still likely to be ahead of the eurozone average, especially as major economies such as Germany and France are expected to continue to lag this year.
'There is a foundation to believe in the attractiveness of Europe, especially on a relative basis,' Francesco Ceccato, Barclays Europe CEO, told Euronews' Business Editor, Angela Barnes, in an exclusive interview.
'What we've seen in the year-to-date period is clearly a compression in the US stock market, for example, and an increase in the indices that I look at for the European stock market.'
According to a recent report from Morgan Stanley, European equities have this year outperformed US stocks by the widest margin since 2000.
The MSCI Europe Index has risen over 9% since January, beating the S&P's slide of 4.5%.
To turn to the latest Fund Manager Survey from Bank of America, released this Tuesday, the data also showed the most significant rotation from US to European equities since records began in 1999.
A net 39% of fund managers now hold an overweight position in European equities, the highest level since mid-2021. On the other hand, 23% of investors report being underweight US stocks.
Despite the recent rally, researchers from Goldman Sachs have predicted that the uptick isn't fleeting. Last week, they suggested that European equities would rise as much as 6% in the next 12 months.
'There is clearly a lot of concern amongst the investors…around what some of the trade disruption might do to the economy,' Ceccato said, referring to tariff threats from US President Donald Trump.
The White House noted on Tuesday that new reciprocal tariff rates would take effect on 2 April, despite suggestions that they could be delayed.
While the US is looking to mirror some trade barriers established by other nations, it has also imposed another raft of levies.
Trump has - for instance - introduced a 25% tariff on all steel and aluminium imports. That's as well as placing a 20% tariff on incoming Chinese goods and threatening a 200% levy on EU alcohol imports.
Trade policies are likely to have 'significant' impacts on the US, said Ceccato, harming growth and pushing up inflation.
Ceccato added that Europe is also set to suffer from a tariff war, although economies could see a boost from extra defence spending.
"The euro area has roughly €480 billion of goods exports to the US. Now, at the moment, the latest models that our research team have looked at are relatively mild in terms of the tariff assumption that's being made. But were there to be a 25% tariff on all of those goods, that could actually tip the eurozone into recession,' he said.
Meanwhile, Germany's parliament has just this week approved a reform of its debt brake proposed by chancellor-in-waiting Friedrich Merz, which allows for more fiscal flexibility.
Defence spending of more than 1% of GDP will be exempted from the strict debt limit and state governments will be allowed to run annual deficits of up to 0.35% of GDP. The bill will also establish a €500 billion fund to invest in the country's ageing infrastructure.
On the prospect of greater military spending, Europe's defence companies are cashing in. Rheinmetall shares are up around 124.8% in the year to date, Thales stock has jumped 79.2%, while shares in Leonardo have risen 82.9%.
Discussing how Europe can further improve its competitiveness, Ceccato noted that the EU still needs to work on developing deeper pools of capital.
'We also need to think creatively about how we can use…the firepower that we have in some of our European institutions to pair up with private capital, that is, institutional capital that can be brought to bear to tackle some of these Herculean challenges,' he said.
Ceccato explained that if Europe wants to effectively support its industries, it cannot solely rely on retail investments made by members of the public.
Compared to EU firms, companies in the US still find it easier to access capital due to the scale of the market and flexible funding options. A more risk-averse sentiment in the EU, as well as a more fragmented financial market across diverse member states, can hamper innovation.
"This is still all about capital, capital, capital," said Ceccato.