SNB’s 25bps Cut: A Subtle Move, Intervention Hints Create Uncertainty

The Swiss National Bank (SNB) cut its policy rate by 25 basis points to 1.00%, a move that aligned with most market expectations. This decision initially strengthened the Swiss franc (CHF), as markets had priced in a 40% implied probability of a larger 50bps cut. In the immediate aftermath, EUR/CHF fell from 0.9492 to 0.9436, reflecting traders’ responses to the modest policy easing. However, the situation quickly became more complex.

In its policy statement, the SNB indicated readiness to intervene in the foreign exchange markets “as necessary.” This declaration, coupled with their remarks on further potential rate cuts in the coming quarters to maintain price stability, softened the franc’s initial strength. The central bank also revised its inflation forecasts significantly lower, with the outlook for 2024 adjusted to 1.2% from the previous 1.3%, and 2025 lowered to 0.6% from 1.1%. They attributed this downward revision to factors including the stronger Swiss franc, lower oil prices, and upcoming electricity price cuts in January.

Moreover, the SNB emphasized that the forecast assumes the policy rate remains at 1.00% throughout the forecast horizon, suggesting that without this rate cut, inflation estimates would be even lower. The bank also stated that weaker second-round effects are expected in the medium term. The new forecast aligns with the range of price stability, potentially opening the door for more easing if economic conditions demand.

This combination of a smaller-than-expected rate cut, dovish language on future rate policy, and willingness to intervene in FX markets presents a mixed picture. The initial CHF strength was largely pared back as the statement made it clear that the SNB remains concerned about deflationary pressures and is prepared to act. 

The market reaction reflects the SNB’s careful balancing act between controlling domestic inflation and managing the franc’s strength to support exports. As the dust settles, EUR/CHF is holding around the 0.9470 level, indicating a marginal initial reaction. There was no big surprises here. 

Certainly! Here’s a more detailed version of the copper piece, drawing extensively on the recent statements from China’s Politburo: