GENEVA/LONDON, Monday, June 24, 2024-Central banks in Europe took divergent paths last week with the Swiss National Bank (SNB) lowering its key interest rate for the second time this year, while the Bank of England opted to hold rates steady.
The SNB cut its policy rate by 25 basis points to 1.25%, citing a further easing of inflationary pressures in Switzerland. This move follows a similar cut in March. 1
This move comes in response to falling inflation and included signals that the SNB is prepared to intervene in currency markets to manage the franc’s value. The rate cut led to a decline in the franc’s value against the euro and the dollar. SNB chair Thomas Jordan emphasized readiness to act in the foreign exchange market as necessary.
The SNB was the first major Western central bank to cut rates in March this year, initiating a shift as global policymakers begin to reverse the rate-raising trend from 2021-2022.
While other European monetary authorities have also cut rates, some central banks remain cautious due to ongoing inflation concerns.
The SNB slightly lowered its inflation forecast and provided limited hints about future rate cuts.
The Bank of England, however, kept its key rate unchanged at 5.25%, the highest level in 16 years. The decision reflects the bank’s concerns about persistently high inflation, even though recent declines in energy and food prices have offered some relief. 2
Despite headline inflation dropping to the BoE’s 2% target for the first time in three years, higher-than-expected services inflation at 5.7% influenced the decision.
Governor Andrew Bailey emphasized the need to ensure inflation remains low, although a rate cut could be considered at the next meeting in August. The decision aligns with economists’ expectations and leaves rates at a 16-year high.
Traders have increased bets on a summer rate cut, with a more than 40% chance of a quarter-point cut in August.
Central Banks’ Rate Cut Actions
Here is a short list of what other Central Banks of ten selected economies did:
– Sweden: Lowered rates to 3.75% from 4% in May; further cuts expected.
– Canada: Cut rates by 25 basis points to 4.75% in June; more cuts anticipated.
– Euro Zone: ECB cut rates by 25 basis points to 3.75% in June; future cuts expected.
– Britain: Bank of England held rates at 5.25%, but future cuts are likely.
– United States: Fed held rates at 5.25%-5.5%; one cut expected this year.
– New Zealand: Possible rate cut in October; high rates impacting the economy.
– Australia: Rates held at 4.35%; no cuts expected until 2025.
– Norway: Rates held at 4.5% until 2024.
– Japan: Raised rates out of negative territory in March; potential rate hike in July.
- ft.com: https://www.ft.com/content/ffe50093-1b35-4fce-a0d1-b3ef79dc2a6f[↩]
- ft.com: https://www.ft.com/content/1c7beb93-4809-407d-bc85-7e320287a1d6[↩]
