SNB cuts key interest rate

0 Comments | Swiss News, Nov, 2008

In an effort to jumpstart economic activity, the Swiss National Bank joined forces with leading central banks from around the world and dropped its key interest rate.

On October 8, the SNB cut its target rate to 2.5 per cent, from 2.75 per cent, by reducing its target range to 2-3 per cent, from 2.25-3.25 per cent.

This is the first time in five years the SNB has sliced its target rate, according to the Swiss daily newspaper Cash Daily.

The SNB said its decision was prompted by a combination of easing inflationary pressures--in part due to tumbling energy and commodity prices--and an outlook for slower economic growth. A lower interest rate makes it cheaper to borrow money, and thus encourages economic activity and growth.

"In view of the improved inflation outlook, as a result of the economic downturn and the low oil prices, the SNB is now able to loosen its monetary policy reins," the central bank said in a press release.

The SNB acted in coordination with the European Central Bank, the Bank of England, the Bank of Canada, the U.S. Federal Reserve and the Sveriges Riksbank (Central Bank of Sweden).

Unlike central banks that set a fixed interest rate, the SNB fixes a target range for the three-month Swiss franc Libor. As a rule, the target range extends over one percentage point, and the SNB generally aims to keep the Libor in the middle of the range.

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