SNB Cuts Key Rate by Half Point in a Show of Force on Franc

The Swiss National Bank (SNB) has made a bold move in its ongoing battle against the appreciation of the Swiss franc, cutting its key policy rate by 50 basis points to 0.5 percent. This unexpected decision, announced on December 12, 2024, signals the SNB's determination to combat the franc's strength and its impact on Swiss inflation.

The SNB's move comes as a surprise to many, as market expectations were skewed towards a more modest 25 basis point cut. However, the central bank's chief investment officer, Philipp Merkt, of PostFinance, suggests that the significant interest rate move reflects the SNB's concern over the franc's appreciation and its consequences on Swiss inflation.

The appreciation of the Swiss franc, particularly against the euro, has been weighing on import prices, which are now 2.3 percent lower than a year ago. This, in turn, has impacted overall inflation, which has fallen to 0.7 percent and is expected to decrease further in the coming months. The SNB's interest rate cut is an attempt to reduce the franc's appeal to foreign investors and mitigate the risk of deflation.



The SNB's decision to cut its key policy rate by 50 basis points is a clear indication of its commitment to maintaining price stability and supporting the Swiss economy. The move is expected to have a significant impact on Swiss inflation in the short and medium term, as it aims to reduce the franc's strength and ease inflationary pressures.

The SNB's action is also likely to have an impact on the Swiss franc's exchange rate against major currencies like the USD and EUR. The USD/CHF pair surged to a fresh two-week high near 0.8900, while the EUR/CHF pair fell, reflecting the franc's depreciation. This move is a result of the SNB's attempt to reduce the appeal of the Swiss franc to foreign investors and weaken the currency.



The SNB's decision to cut its key policy rate by 50 basis points is a strong signal of its commitment to maintaining price stability and supporting the Swiss economy. The move is expected to have a significant impact on Swiss inflation and the Swiss franc's exchange rate against major currencies. As the SNB continues to monitor the situation closely, it remains prepared to adjust its monetary policy as necessary to ensure inflation remains within its target range over the medium term.