Swiss Central Bank Makes a Surprise Cut to Its Key Interest Rate as Others Hold Steady

GENEVA (AP) -- The Swiss National Bank said Thursday that it is trimming its key interest rate, a surprise move that makes Switzerland the first major financial center to announce a cut in recent months.

Thomas Jordan, the outgoing SNB chairman, credited the central bank's push to rein in inflation in the wealthy Alpine country. The cut of a quarter of a percentage point, to 1.5%, will apply as of Friday.

"The easing of our monetary policy has been made possible because the fight against inflation over the past two and a half years has been effective," he told reporters.

"For some months now, inflation has been back below 2%, and thus in the range we equate with price stability," Jordan added. "According to our new forecast, inflation is also likely to remain in this range over the next few years."

The move, which Swiss media said caught some by surprise, had an almost immediate effect on the Swiss franc, which dropped in value against the euro. The franc was trading at 1.02 euros Thursday, down from 1.03 euros a day earlier. In January, the Swiss currency was at all-time highs against the European currency -- above 1.07 euros.

Jordan said the Swiss central bank also was taking into account the appreciation of the franc in real terms over the past year and noted how the rate cut "supports economic activity."

It came a day after U.S. Federal Reserve officials signaled that they expect to cut their key interest rate three times this year, fueling a rally on Wall Street, even though they kept their benchmark rate unchanged for now -- a fifth straight time.

Similarly, the Bank of England is expected to show Thursday that it is inching toward cutting borrowing costs as price rises ease while holding its main interest rate steady at a 16-year high.

"The Swiss National Bank is the first major central bank in the developed world to cut rates in this cycle," analysts for ING bank said. They noted that the bank "is known for its sometimes unexpected decisions."

The ING analysts said they expected to see additional rate cuts in June and September.