SNB

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The Swiss National Bank was established in response to the need for a consolidation of the numerous commercial banks issuing banknotes, which numbered 53 sometime after 1826. In the 1874 revision of the Federal Constitution, it was tasked with overseeing legislation related to the issuance of banknotes. Subsequently, in 1891, another revision of the Federal Constitution entrusted the Confederation with exclusive rights to issue banknotes. The Swiss National Bank was formally founded under the law of 6 October 1905 (referred to as 'the National Bank Act'), which came into effect on 16 January 1906. Operations commenced on 20 June 1907. The primary objective of the Swiss National Bank is to maintain price stability, while also considering economic developments. Its monetary policy is designed to serve the interests of the entire country, ensuring price stability while accounting for economic trends. Monetary policy decisions have significant effects on production and prices, but these effects are typically observed over a considerable period. Therefore, policy decisions are based on forecasts of inflation rather than current inflation rates. The monetary policy strategy of the SNB comprises three main components: a definition of price stability (with the SNB defining it as an increase in the national consumer price index of less than 2% annually), a medium-term conditional inflation forecast, and, at the operational level, a target range for a reference interest rate. This reference interest rate is based on the Libor for three-month investments in Swiss francs. ?

The Swiss National Bank (SNB) implemented a decrease in interest rates on Thursday, marking the first such adjustment since June 2022. Switzerland stands out as the initial advanced economy to enact interest rate cuts amidst a prolonged period of heightened inflationary pressures. These pressures have been exacerbated by the impacts of the Covid-19 pandemic on global trade and the ongoing conflict between Russia and Ukraine. Additionally, Switzerland faced challenges in its banking sector last year, prompting government intervention to facilitate UBS’ acquisition of struggling competitor Credit Suisse. The SNB has reported success in its efforts to combat inflation. In February, Swiss inflation continued its decline, reaching 1.2%. Furthermore, the SNB has revised its annual inflation forecasts downwards. It now anticipates average inflation of 1.4% in 2024 and 1.2% for 2025. The initial forecast for 2026 suggests an average inflation rate of 1.1% over the period. Market expectations anticipate two additional rate cuts by the SNB throughout the year, reflecting a more dovish stance. Swiss interest rates have been lowered by a quarter percentage point to 1.5%. In contrast, central banks globally have been aggressively raising interest rates over the past year to counter rising inflationary pressures. Higher interest rates increase the cost of borrowing, thereby suppressing demand and mitigating price increases. The interest rate reduction is also expected to bolster economic activity. Having experienced less inflation compared to other European countries, Swiss consumers have endured minimal loss of purchasing power. However, given the significance of exports to Swiss companies, the central bank faces a delicate balancing act between sustaining consumer spending and preserving Swiss industrial competitiveness. ?This could boost lagging Swiss equity markets, both the multinational companies and the mid- and small sized companies.

Swiss interest rates were not only lower than in the EU or in the US, but the SNB was a first mover, stimulating the economy as one of the first major central banks. Switzerland had an extra monetary instrument it used to its benefit called the Swiss Franc.

Having purchasing power corroded less than your competitors gives you strength. This is typically seen in strong currency moves. With Switzerland exporting 71.37% of GDP of goods and services the country is vulnerable to currency moves. According to customs statistics, in 2020 Switzerland exported goods to the value of CHF 225 billion. Exports to EU countries account for almost half of this total. Germany is Switzerland's main trading partner, with an 18% share of exported goods.