Following its quarterly monetary policy assessment on Thursday, the Swiss National Bank (SNB) board members decided to cut the benchmark Sight Deposit Rate by 25 basis points (bps) from 1.75% to1.50%.
The rate decision came in as a surprise to the markets.
Momentum on the mortgage and real estate markets has weakened noticeably in recent quarters. However, the vulnerabilities in these markets remain.
The weak demand from abroad and the appreciation of the Swissfranc in real terms over the past year are having a dampening effect.
In this environment, unemployment is likely to continue to rise gradually, and the utilization of production capacity is likely to decline somewhat further.
Banks’ sight deposits held at the SNB will be remunerated at the SNB policy rate up to a certain threshold, and at 1.0% above this threshold.
This scenario for the global economy is still subject to significant risks. Inflation could remain elevated for longer in some countries, necessitating a tighter monetary policy there than expected in the baseline scenario.
The SNBalso remains willing to be active in the foreign exchange market as necessary.
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