SNB Cuts Key Interest Rate to 1.5% to Contain Franc
1 Video View·Mar 21, 2024
The Swiss National Bank lowered its key interest rate by 25 basis points to 1.5%, acting months before global peers may follow suit as policymakers try to prevent gains in the franc. Guy Johnson, Kriti Gupta, and Anna Edwards have the details on Bloomberg Television
The S&B decision is about to drop on our screen, and it's a cut, a 25 basis point cut from the S&B.
The rate goes from 175 to 150.
There we go. And what kind of reaction are we going to be seeing in Euro-Swissy?
A big spike higher.
The euro moves higher against the Swiss franc, unsurprisingly on this surprising, to a certain extent, rate decision out of the S&B.
The market got this one right.
The massive hedging you're seeing, the massive options that are really kind of shorting the Swissy, got it right against the euro,
against the yen, against the dollar, against the pound.
Yes, this is really something, isn't it?
Because this, of the major central banks around the world, this is a rate cut coming through.
We're not leaving aside the BOJ, where things get complicated on a different times trajectory.
But of the others, where we're waiting to see in 2024 when we get that first rate cut, well, here we have one coming through from the S&B.
And the market reacts, as you mentioned.
Only five out of 23 economists saw this one coming.
But to your point about market positioning, we have seen in recent days options very much positioning around the expectation that we could see this come through.
And we should also mention, already more headlines coming out here, that they are prepared to intervene in the currency markets if needed.
We've been watching that as well.
They're also talking about that 2024 inflation coming in higher than expected, 1.4 percent, 2025 at 1.2, 2026 at 1.1.
In terms of FX concerns, this is sort of back to where we've known the Swiss bank B many times in the past, which is concerned about the strength of their own currency.
And at a time of geopolitical concern, it's easy to see why money goes into the Swiss franc.
There's been a trade for so long.
But so this is part of that story, going back to the idea that you want to protect people from the Swiss franc becoming too strong.
Recently, we've seen a different obsession at the S&B, where actually they were worried about imported inflation.
And so a different...
They want the inflation now.
So in some ways, bringing that currency down is going to maybe ameliorate some of the difficulty they're seeing surrounding the inflation, this inflationary trend that we are now getting.