The Swiss franc has reached its strongest level in almost a decade, raising the prospect of the Swiss National Bank (SNB) implementing the first significant interest rate cut by a major central bank in 2024. Economists expect the SNB to lower rates by a quarter-point during its meeting on Sept. 26, but the chances of a more substantial half-point reduction have been growing, with market pricing now suggesting a one-in-three probability, up from zero a month ago.
The franc’s rise, which has seen a 6% gain against the US dollar since July, is pressuring exports while reducing import prices at a time when inflation remains low, well within the SNB’s 0-2% target range. Policymakers at the SNB may need to act more decisively to curb the franc’s surge, with experts at MUFG Bank, UBS, and Bank of America calling for more forceful measures.
While exporters are urging swift action to stem the currency’s rise, some strategists believe a smaller 25-basis-point cut combined with foreign exchange interventions could be enough to prevent further strengthening. However, others argue that a more aggressive half-point cut is necessary, given the low inflation rate of 1.1% in August and the franc’s impact on economic recovery.