Inflation Continues to Decline in Switzerland, Justifying SNB's Interest Rate Cut Decision

Foreks - Switzerland's inflation rate declined in the last month of 2024, justifying the Swiss National Bank's (SNB) decision to lower the benchmark interest rate for the fourth consecutive time last month.

According to a statement from the Swiss Federal Statistical Office, consumer prices increased by 0.6% year-on-year in December, lower than the annual inflation rate of 0.7% recorded in November. The announced rate was in line with market expectations.

The inflation rate for December matched the level recorded in October, which was the lowest since June 2021.

The SNB reduced the policy interest rate from 1.0% to 0.5% in December, hoping to rein in the recently strengthened Swiss franc.

The new SNB president, Martin Schlegel, indicated that negative interest rates are not excluded from the SNB's monetary policy toolkit, arguing that such measures could be considered in the future to impose a limit on the currency and protect exports.

The Swiss franc is viewed as a safe haven by investors amid international economic uncertainty. This uncertainty could increase if Donald Trump's presidency disrupts global trade flows.

In a note to clients, Adrian Prettejohn, an economist at Capital Economics Europe, remarked, "The decline in Switzerland's inflation in December fully justifies the SNB's decision to make a major 50 basis point cut in December."

Prettejohn added that the SNB is likely to reduce the policy interest rate by another quarter point at its next meeting in March, and further cuts should not be ruled out thereafter.