At a time when others are starting to lower their rates, Switzerland is not far from having finished its own. At its meeting in September, the Swiss National Bank decreased its rates by a quarter of a point to 1.0%.
According to SNB, if inflation remains on a firmly downward trend (1.1% only in August), it is mainly because the price of imported goods and services is falling. This is primarily due to the relatively expensive Swiss franc. Overvalued against the euro and many other currencies, the franc weighs on Swiss competitiveness.
By reducing the returns offered, the SNB is, therefore, trying to reduce the attractiveness of the Swiss currency. Still, it cannot say much about the fact that the franc remains a haven and tends to appreciate, particularly during periods of high volatility, as we experienced in August.
The SNB is not too delusional
After an average inflation forecast of 1.3% over the current year, it predicts inflation between 0.6% and 0.7% in 2025 and 2026. Forecasts are based on an interest rate of 1.0% for the whole period.
Inflation would have been even lower without this latest reduction in policy rates, and deflation could be under threat. Therefore, the government announced that further rate cuts remain possible to ensure price stability (and a weaker franc) in the coming months. This is not likely to displease the country’s exporters, for whom the high cost of the currency represents a significant challenge.
We continue to invest in Swiss equities across our diversified portfolios.