The 'interest rate cut storm' hits Europe.
After the Swedish central bank cut interest rates, the Swiss central bank followed suit. On September 26th Beijing time, the Swiss National Bank announced its latest interest rate decision, lowering the benchmark interest rate by 25 basis points to 1.00%, marking the third consecutive interest rate cut and meeting market expectations.
The Swiss National Bank stated in its decision statement that it may be necessary to further lower policy rates in the coming quarters to ensure the stability of neutral rates. If necessary, we will be prepared to intervene in the foreign exchange market. Some analysts believe that the Swiss National Bank also seems unwilling to see the Swiss franc further strengthen, as the strengthening of the franc will have a negative impact on Swiss exporters.
It is worth noting that Europe is currently experiencing a storm of interest rate cuts. The current market is increasing its bets on the European Central Bank's interest rate cuts. The money market is betting that the European Central Bank will cut interest rates by 50 basis points before the end of the year, marking the first time since August 6th. Deutsche Bank stated in its latest report that it currently expects the European Central Bank to accelerate its interest rate cut cycle, continuously cutting interest rates by 25 basis points starting from December, and even not ruling out the possibility of a 50 basis point rate cut in December.
Swiss Central Bank announces
On September 26th Beijing time, the Swiss National Bank announced its latest interest rate decision, lowering the benchmark interest rate by 25 basis points to 1.00%, marking the third consecutive interest rate cut and meeting market expectations.
Despite market speculation that the Swiss National Bank may follow the example of the Federal Reserve and significantly cut interest rates by 50 basis points, officials remain restrained in any accelerated policy easing.
The resolution statement stated that considering the significant decrease in inflation pressure compared to the previous quarter, a lenient resolution has been made. In the coming quarters, it may be necessary for the Swiss National Bank to further lower policy rates to ensure the stability of neutral interest rates.
Driven by the geopolitical crisis, the attractiveness of the Swiss franc as a safe haven asset continues to increase, and since the middle of this year, the Swiss franc exchange rate has continued to rise. Some analysts believe that Swiss central bank officials also seem unwilling to see the Swiss franc further strengthen, as the strengthening of the franc will have a negative impact on Swiss exporters.
Therefore, the Swiss National Bank stated in the statement that it will be prepared to intervene in the foreign exchange market if necessary.
After the resolution was announced, the Swiss franc exchange rate jumped in the short term, but then quickly gave up some of the gains. The US dollar fell 0.12% against the Swiss franc during the day, closing at 0.8494.
The Deputy Governor of the Swiss National Bank stated that the main tool of the Swiss National Bank will be interest rates, and if necessary, foreign exchange intervention may be carried out.
In the past quarter, inflation pressure in Switzerland has significantly slowed down, and economic growth has moderately recovered. The latest inflation data shows that Switzerland's August CPI rose 1.1% year-on-year, slowing down beyond expectations and far below the bank's inflation target of 2%, mainly driven by the decline in imported goods and services prices.
At the same time, Switzerland's GDP growth in the second quarter was steady, and the overall production capacity rate remained at a normal level, indicating a steady recovery of the economy. The data shows that the annual GDP rate in the second quarter was 1.8%, higher than the expected 1.4%, and higher than the previous value of 0.60%.
The Swiss National Bank believes that Switzerland's economic growth in the coming quarters may remain moderate, the unemployment rate may continue to rise slightly, and the capacity utilization rate will also slightly decrease.
For the outlook of the economy and inflation, the Swiss National Bank has lowered its inflation expectations for the past three years, mainly due to the strengthening of the Swiss franc, the decline in oil prices, and the reduction of electricity prices in January next year. The expected annual average inflation rate is 1.2% in 2024, 0.6% in 2025, and 0.7% in 2026.
This forecast is based on the assumption that the Swiss National Bank's policy interest rate will be 1.0% throughout the entire forecast period. If it weren't for today's interest rate cut, inflation expectations would have been lower.
Meanwhile, the Swiss National Bank predicts that Switzerland's GDP will grow by approximately 1.0% in 2024 (previously expected to be around 1.0%); It is expected that Switzerland's GDP will grow by about 1.5% in 2025 (previously expected to be 1.5%).
In the context of global economic slowdown, the Swiss National Bank's interest rate cuts are seen as a strategy to prevent further economic slowdown, while also helping to curb the issue of Swiss franc appreciation and support the domestic economy.
Europe sets off a storm of interest rate cuts
It is worth noting that before the Swiss central bank announced the interest rate cut, the Swedish central bank announced on September 25th that it would lower its benchmark interest rate by 25 basis points to 3.25%, in line with market expectations. Prior to this, the Swedish central bank had cut interest rates twice in May and August this year, both by 25 basis points.
The Swiss National Bank also hinted that it may be necessary to further relax policies to curb the strength of the Swiss franc.
At the same time, the current market is increasing its bets on the European Central Bank's interest rate cuts. The money market is betting that the European Central Bank will cut interest rates by 50 basis points before the end of the year, marking the first time since August 6th. Traders are betting that the European Central Bank will cut interest rates by 16 basis points next month and by 50 basis points before the end of the year.
Sources say that the European Central Bank's interest rate decision in October may be very open. Due to weak economic data, the dovish camp of the European Central Bank will strive to cut interest rates in October.
A series of survey data released by S&P Global on September 23 showed that as the third quarter is coming to an end, the growth rate of the Eurozone economy has significantly slowed down. In September, the Eurozone Composite Purchasing Managers' Index (PMI) was 48.9%, down 2.1 percentage points from the previous month, significantly lower than expected, and the first time since March that it fell below the 50% boom bust line.
Hamburg Commercial Bank Chief Economist Cyrus Delarubia stated that the Eurozone Composite PMI for September experienced its largest decline in 15 months. With the end of the Paris Olympics craze in France, the eurozone economy is heading towards stagnation. Considering the rapid reduction in new orders and order backlog, the eurozone economy is likely to further weaken.
The locomotive of the European economy - Germany's economy is currently on the brink of recession. After a 0.2% month on month increase in Gross Domestic Product (GDP) in the first quarter of this year, Germany's GDP shrank by 0.1% in the second quarter, and almost all important leading economic indicators showed significant deterioration.
In order to prevent further economic recession, the European Central Bank has recently started cutting interest rates for the first time in nearly five years. The latest interest rate cut occurred on September 12th. On that day, the European Central Bank lowered its benchmark interest rate by 25 basis points to 3.50%, marking the second rate cut of the year.
On September 26th, Deutsche Bank stated that it currently expects the European Central Bank to accelerate its interest rate cut cycle, cutting interest rates by 25 basis points consecutively starting from December, and does not rule out the possibility of a 50 basis point rate cut in December.
The bank stated that it had previously expected the central bank to follow a gradual easing path, cutting interest rates by 25 basis points every quarter until reaching a final rate of 2% -2.5% around the end of 2025.
Deutsche Bank is the latest bank to change its call for European Central Bank policy this week, following further signs of a weakening economic outlook in the region.