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Swiss cut interest rates |
| National bank cites uncertainty for
quarter-point reduction |
March 22,
2001: 1:35 p.m. ET
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ZURICH, Switzerland (Reuters) -
The Swiss National Bank unexpectedly cut its key
interest rate target by a quarter-point Thursday, citing
growing uncertainty in the global economy as major
equity markets remained in the grips of a broad sell
off.
"The risks in the international environment
have increased," it said in its quarterly statement on
monetary policy that announced the cut. It said the
outlook for the domestic economy remains favorable even
though growth had slowed somewhat.
The bank
lowered the LIBOR band it targets to 2.75-3.75 percent.
The SNB now will target the middle of the new band,
effectively 3.25 percent. Previously, it had aimed to
have rates near the middle of the old band, or roughly
3.50 percent.
The move surprised most market
participants. Those economists who had seen a chance of
a rate cut said the SNB had more leeway to ease than the
European Central Bank because Swiss inflation is low
compared with that in the euro zone.
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It wouldn't be implausible that
by mid-year another 25 basis points is
cut. |
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Stephan
Betschart
economist |
| One
money market trader said the odds of an ECB rate cut at
its policy meeting next week now have risen
substantially: "I can imagine they (the SNB) just
precede a cut by the ECB next Thursday," he
said.
The ECB has not lowered rates yet, despite
three successive rate cuts by the U.S.
Federal Reserve since early January. But ECB chief
economist Othmar Issing was quoted earlier Thursday as
saying economic risks had increased.
In
Switzerland the focus was on the timing of another SNB
rate cut, which many believe now looks
likely.
"It wouldn't be implausible that by
mid-year another 25 basis points is cut," said Stephan
Betschart, economist at the Swiss Institute for Business
Cycle Research (KOF).
The easing provided only
momentary support to Swiss shares, however. The
blue-chip Swiss Market Index ended down 5.6
percent.
The dollar briefly spiked to a
three-and-a-half-month high above 1.73 francs, while the
euro held near 1.53 francs.
Euro Swiss
three-month futures, which had rallied even before the
move, traded up 16 basis points at 97.08, indicating
three-month rates of around three percent in June.
Copyright 2000 Reuters
All rights reserved. This material may not be published,
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