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Swiss National Bank Cuts 3-Month LIBOR Rate By 100bp To Meet 2% Target for Inflation

Thursday, 20 November 2008 11:28:54 GMT  |  David Song, Currency Analyst

The Swiss National Bank surprised the markets by unexpectedly lowering the 3-month LIBOR target rate for the third time over the last two months as they expect inflation to fall below the 2% target by the end of the year.

The Swiss National Bank surprised the markets by unexpectedly lowering the 3-month LIBOR target rate for the third time over the last two months as they expect inflation to fall below the 2% target by the end of the year. The SNB noted that the intermeeting move was necessary in order to restore price stability sooner rather than later, and went on to say that they will continue to keep a close eye on further developments in the money and foreign exchange markets. The preemptive move by the central bank suggests that the dramatic fall in raw materials paired with the slowdown in the economy have spurred deflation concerns, and the central bank may ease policy further over the coming months as they anticipate economic activity to remain subdued well into the next year.

Fears of deflation have intensified over the past few weeks as the Bank of England lowered the benchmark interest rate by 150bp in order to meet their mandate to ensure price stability, and may become a growing concern for the central banks across the globe as commodity prices continue to tumble lower. Fears of a global meltdown have certainly taken a toll on demands, and conditions may only get worse as the major economies of the world head into a recession.

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