The SNB last week became the first major central bank to cut interest rates, reducing its policy rate to 1.5%. It also lowered its inflation forecasts, saying it now expects price rises of 1.4% for 2024, 1.2% for 2025 and 1.1% for 2026.
“The lower inflation pressure has allowed us to reduce interest rates to 1.5% from 1.75%,” Schlegel told an event in the northeastern city of St. Gallen.
Had the SNB not cut its key rate by 25 basis points, its inflation forecasts would have been lower, he added.
The cut – the first by the SNB in nine years – came after inflation eased to 1.2% in February, the ninth month in a row the rate was within the central bank’s target range of 0-2%.
The SNB has also used the strength of the Swiss franc to shield Switzerland from inflation by making imports cheaper.
Schlegel said the exchange rate played an important role in fighting inflation and noted that the franc appreciated last year when adjusted for inflation.
Swiss industry has complained about the appreciation of the currency, which makes their products more expensive abroad.
“The national bank looks at the exchange rate very closely. If necessary, we also intervene in the foreign exchange market,” Schlegel said, saying the SNB had worked in the past to prevent too fast or too strong a rise in the currency.
“But the national bank does not have an exchange rate target,” he said. “Our target is price stability.”
Economists expect the SNB to reduce its key rate by 50 additional basis points in coming quarters, a Reuters poll showed this week.
Source: Economy - investing.com
