In addition to the unexpected interest rate cut, the Swiss National Bank also warned about foreign exchange intervention...

On Thursday, in an attempt to prevent the appreciation of the Swiss franc, the Swiss National Bank unexpectedly lowered the benchmark interest rate from 1.75% to 1.5% and stated its readiness to intervene in the foreign exchange market. The market had expected it to keep interest rates unchanged.

Following the announcement, the US dollar surged nearly 100 points against the Swiss franc in the short term, and has since retreated somewhat.

This marks the first interest rate cut by a G10 currency central bank since the pandemic subsided. Most economists predicted that Swiss interest rates would remain at a higher level until June.

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The Swiss National Bank's move suggests that the Federal Reserve and the European Central Bank may adopt easing policies later this year, and hopes to alleviate the appreciation pressure on the Swiss franc by taking preemptive action. The Swiss National Bank has long been unafraid to shock investors with sudden actions, and this interest rate cut may add a new chapter to this history.

The Swiss National Bank explained that it could ease monetary policy because the fight against inflation over the past two and a half years has been very effective, "For several months, inflation has returned to below 2%, and thus is within the range of price stability that the Swiss National Bank considers. According to new forecasts, the inflation rate is also likely to remain within this range in the coming years."

Due to the faster deceleration of prices in certain commodity categories than expected in December last year, the Swiss National Bank significantly reduced its inflation expectations. The central bank now expects an inflation rate of 1.4% for 2024, up from 1.9% previously; and has lowered its inflation forecast for 2025 from 1.6% to 1.2%.

The officials of the Swiss National Bank have lacked communication on monetary policy in recent weeks, leading to speculation about an interest rate cut to heat up. Economists from Barclays Bank and Citigroup are among the few groups that predicted the Swiss National Bank would cut interest rates.

However, the recent headlines about the Swiss National Bank have been dominated by its president, Jordan, who unexpectedly announced on March 1 that he would leave the Swiss National Bank later this year, triggering a succession battle.

Earlier, the Federal Reserve insisted on its expectation to cut interest rates three times this year; Norway kept the interest rate level unchanged, and the Bank of England may also keep interest rates unchanged.The Swiss National Bank's interest rate decision has also strongly prevented any potential upward pressure on the Swiss franc, despite the fact that the Swiss franc had already been dominated by bearish factors. Audrey Childe-Freeman, the Chief Foreign Exchange Strategist for G10 at a foreign media outlet, stated that since the end of last year, the Swiss National Bank has been inclined to weaken the Swiss franc.

Up until 2022, safe-haven currencies were favored by investors and strengthened, causing great concern among officials at the Swiss National Bank. This led them to adjust their entire monetary policy and weaken the Swiss franc through foreign exchange intervention.

Policymakers are willing to use such strategies again, even if it means employing the balance sheet size that the Organisation for Economic Co-operation and Development (OECD) emphasized last week as being susceptible to substantial losses. The Swiss National Bank insists that it is "willing to actively participate in the foreign exchange market if necessary," using the same wording as in the previous decision.

Later on, Jordan will hold a press conference, during which there may be questions about his upcoming departure in September. Antoine Martin, the new rate setter who left the New York Federal Reserve in January this year, will also make his first public appearance at that time.