Central bank cuts interest rate in surprise move

The Swiss National Bank has cut its key interest rate by 50 basis points – the second cut within a month – to stem the rise in the Swiss franc and boost the economy.

The move on Thursday lowers the three-month target range of the Libor (London Interbank Offered Rate) to 1.5 – 2.5 per cent with immediate effect, with the bank intending to hold the rate in the middle of the target range for the time being.

In a statement, the SNB even painted the picture of recession on the horizon.

The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters; growth in 2009 might even be negative, it said.

But it noted that the economic slowdown, the decline in the price of oil and the appreciation of the Swiss franc would all help Swiss inflation rates to drop.

The statement said the SNB would continue to provide the Swiss franc money market with liquidity in a “generous and flexible” manner, and would keep a close watch on the movement of the franc on the foreign exchange markets.

The SNB’s move came at the same time as an announcement from the European Central Bank that it was lowering its interest rate by half a point.

The Bank of England also announced that it was cutting its interest rate by a bigger-than-expected 1.5 percentage points to boost the British economy.