There were two not unexpected results from meetings of two major central banks on Thursday—the Bank of England and the Swiss National Bank.
The Bank of England (BoE) maintained its key interest rate, while the Swiss National Bank (SNB) cut its rate for the second time since March. The BoE decided to keep interest rates steady at its June meeting, even after U.S. inflation hit its 2% target in May.
The BoE's key rate remains at a 16-year high of 5.25%, where it has been held since August last year. Seven members of the Monetary Policy Committee voted to hold the rate, while two favored a cut, the same as at the bank’s May meeting.
The decision means there will be no rate cut before the UK general election in less than two weeks. Core and services inflation fell in May but remained well above the 2% target for the BoE, which is why most analysts predicted there would be no cut.
BoE Governor Andrew Bailey stated that it was "good news" that the latest inflation data showed inflation was back at its 2% target, but that it was too soon to cut rates. "We need to be sure that inflation will stay low, and that's why we've decided to hold rates at 5.25% for now," he said. Bailey's statement differed from last month when he expressed optimism that the data was moving in the right direction for a rate cut.
Earlier, the Swiss National Bank (SNB) cut its key interest rate for the second time in three months, by 0.25% to 1.25%. These cuts have made the SNB the fastest cutter among major central banks. The European Central Bank and the Swedish central bank have both cut their key rates in the past month.
The cut was expected by many economists, and some suggested another cut might be forthcoming from the SNB later this year, possibly in September. Following the Thursday decision, the Swiss central bank pegged its conditional forecast for inflation at 1.3% for 2024, 1.1% for 2025, and 1% for 2026. These figures assume an SNB interest rate of 1.25% over the prediction period.
Swiss inflation remained steady at 1.4% in May after a slight rise in April. The SNB now forecasts growth of around 1% this year and around 1.5% in 2025, anticipating slight increases in unemployment and small declines in the utilization of production capacity. “Over the medium term, economic activity should improve gradually, supported by somewhat stronger demand from abroad,” the SNB said.
