The Swiss National Bank made a surprise full percentage point cut in interest rates on Thursday, a third reduction in quick succession aimed at stopping the economy sliding into recession as the global outlook worsens fast. The SNB said it had lowered its target band for the 3-month Swiss franc Libor to 0.50-1.50 percent from a previous 1.50-2.50 percent range. The central bank would provide generous liquidity to bring the Libor rate down to the mid-point of the new range, or 1.00 percent, it added. “International economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year,” it said in a statement. Thursday's cut, which was announced three weeks before a regular quarterly review, takes Swiss rates to their lowest level since March 2006. The Swiss franc fell to its lowest level against the dollar since August last year after the cut, while euro zone government bonds gained and Swiss stocks pared some loses, with banks UBS and Credit Suisse limiting earlier heavy falls. “This is completely unexpected. It's a bold move that the SNB must have deemed necessary,” said Sarasin economist Jan Poser. “Their risk scenario must have become reality. At the last cut, they warned that there could be negative (economic) growth in 2009. This has probably become their best case scenario.” Economic statistics in recent days have added to the case for monetary easing, including data which showed Swiss exports fell sharply in October, retail sales slowed in September and input price inflation eased in October. The move followed a 50 basis point cut on Nov. 6, the same day as the Bank of England and European Central Bank lowered rates, and a 25 basis point reduction on Oct. 8 which was coordinated with other central banks and was the SNB's first easing in five years. Marc Ostwald, a bond analyst at Monument Securities in London, said the SNB move could herald similar action by the European Central Bank at its meeting on Dec. 4 or even earlier. Fears about a Swiss recession have been mounting as exports are hit by the global economic trouble and by the higher franc, while its banks are struggling with the credit crisis. The SNB currently forecasts growth this year of 1.5-2.0 percent, but has warned that the economy could shrink in 2009.
