The European Central Bank (ECB) and Swiss National Bank (SNB) both cut their key interest rates on Thursday, with the ECB cutting rates for the fourth time in 2024, while the SNB opted for the biggest rate cut in nearly a decade.

The ECB cut its deposit facility interest rate by 25 basis points to 3%. The move is widely expected and will bring the total rate cut to 100 basis points since the ECB began its current easing cycle in June 2024. Meanwhile, the Swiss central bank cut its policy rate by 50 basis points, more than expected, lowering it from its previous level. 1% to 0.5%.

ECB moves as expected, hinting at further rate cuts

Although some members of the ECB’s Governing Council suggested further rate cuts, President Christine Lagarde said the final decision to cut interest rates by 25 basis points was “unanimous”.

“The process of deinflation is progressing well,” the ECB said in a statement, pointing to signs that inflation was converging towards its 2% target. Inflation forecasts have been revised down slightly, to 2.4% for 2024 (down from 2.5%) and 2.1% for 2025 (down from 2.2%).

Growth forecasts have also been revised downward. The euro area’s growth rate in 2024 is expected to be revised downward to 0.7% from the previous forecast of 0.8%, and the growth rate in 2025 is expected to be lowered to 1.1% from the previous forecast of 1.3%. Lagarde acknowledged that “risks to economic growth remain tilted to the downside,” pointing to global trade tensions and declining business and consumer confidence as key challenges.

The ECB also removed a key phrase from its statement, no longer promising to “keep policy interest rates sufficiently restrictive for as long as necessary.” This change is seen as a sign of a dovish trend, with the market expecting another rate cut in 2025.

Swiss central bank surprises with 50 basis point interest rate cut

This was the steepest rate cut since emergency measures in January 2015, when the SNB abruptly abandoned its minimum exchange rate with the euro.

More than 85% of economists surveyed expected a small change of 25 basis points. The Swiss central bank blamed the decision on lower-than-expected inflation and a persistently strong Swiss franc, complicating Switzerland’s export competitiveness. Switzerland’s inflation rate was 0.7% in November, well within the Swiss central bank’s price stability target of 0-2%.

“We are countering the decline in inflationary pressures with today’s monetary easing,” Swiss National Bank Chairman Martin Schlegel said at his first policy meeting as central bank president. He also suggested that while negative interest rates are now less likely, further rate cuts remain a possibility.

Schlegel noted that the strong franc could still weaken Swiss exporters, leaving open the possibility of intervention in the foreign exchange market if necessary. Following this decision, the franc depreciated against both the euro and the US dollar.

market reaction

European stock markets were initially volatile, but ultimately closed slightly lower. A rate cut is already almost priced in, and the downward revision to the growth rate has heightened concerns.

The pan-European Stoxx 600 index ended the day down 0.14%, mining stocks fell 1.7%, while auto stocks rose 0.87%. Germany’s DAX rose 0.13%, the FTSE 100 index rose 0.12%, and France’s CAC40 index fell 0.03%.

Following the ECB’s announcement, the euro briefly fell against the US dollar, but has since recovered to trade 0.18% higher at $1.051. The Swiss franc fell and the euro rose nearly 0.7% against the Swiss franc.

The difference in the scale of action between the ECB and the SNB reflects their different priorities. While the ECB is focused on stabilizing inflation and supporting growth amid potential US tariffs and geopolitical uncertainty, the SNB is grappling with the impact of a strong currency on Switzerland’s export-dependent economy. There is.