On Thursday, the Swiss National Bank lowered the benchmark interest rate by 50 basis points, the largest cut in nearly 10 years, exceeding the market expectation of 25 basis points. The benchmark rate was reduced from 1.0% to 0.5%, the lowest level since November 2022. The central bank aims to stay ahead of the expected interest rate cuts from other central banks and to limit the appreciation of the Swiss Franc.

This rate cut is the largest since the emergency cut by the Swiss National Bank in January 2015 when it unexpectedly abandoned the minimum exchange rate of the Swiss Franc against the Euro.

This rate decision is the first decision made by the new Swiss National Bank Chairman Martin Schlegel since taking office, accelerating the policy process handled by his predecessor Thomas Jordan; this year, Thomas Jordan has already implemented three cuts of 25 basis points each.

After the announcement of the decision, the Swiss Franc weakened while the Zurich stock market rose. The USD/CHF exchange rate fluctuated nearly 60 points after the interest rate decision was announced, with a day increase of 0.5%, while the Swiss market index rose by 0.5% after earlier dropping by 0.1%. The Swiss National Bank stated it is prepared to intervene in the Forex market if necessary.

The appreciation of the Swiss Franc poses another headache for Swiss exporters, making their export products more expensive amid weak demand in Europe.

UBS Group Analyst Alessandro Bee stated: "Low inflation and the risks facing the European and Swiss economies could be the main driving factors for this rate cut; furthermore, by cutting rates by 50 basis points, the Swiss National Bank may aim to widen the interest rate differential to proactively curb the excessive strengthening of the Swiss Franc."

In November, the inflation rate in Swiss Franc was 0.7%, and it has remained within the Swiss National Bank's defined price stability range of 0-2% since May 2023.

The Swiss National Bank stated: "Potential inflation pressure has declined again this quarter, and today’s decision to ease monetary policy takes this trend into consideration. The Swiss National Bank will continue to closely monitor the situation and will adjust monetary policy as necessary to ensure that inflation remains within a range consistent with price stability in the medium term."

The bank forecasts an inflation rate of 1.1% for 2024 (previously predicted at 1.2%), and an inflation rate of 0.3% for 2025 (previously predicted at 0.6%); it is estimated that Switzerland's GDP will be around 1.0% in 2024 (previously estimated at about 1.0%), and Switzerland's GDP in 2025 is expected to be around 1.0-1.5% (previously estimated at about 1.5%).

The Swiss National Bank pointed out that the predictions for the Swiss economy, like those for the global economy, come with a great deal of uncertainty, and the economic outlook has faced increased uncertainty in recent months. Developments abroad pose major risks. The direction of future economic policy in the USA remains uncertain, and political uncertainty in Europe has also risen, with the possibility that inflation in some countries may still exceed expectations.

Karsten Junius, Chief Economist at the Bank of Geneva, had predicted this significant rate cut and expects two more 25 basis point rate cuts in the first half of next year. He stated: "Currently, inflation risks are decreasing, economic growth is below potential, and Switzerland's major exports are grappling with structural and cyclical issues."