The SNB’s not waiting around.

Switzerland became the first G10 country to cut rates in the pandemic inflation era on Thursday, when the outgoing Thomas Jordan decided to get a jump on developed market peers, presumably in the interest of preempting unwanted franc appreciation. It’s always about the currency with the SNB.

Franc strength was an asset during the inflation fight. As such, the SNB not only countenanced it, but worked to help it along, selling reserves to bolster the currency and thereby inoculating the local economy from the inflation virus plaguing the rest of the developed world.

By late last year, though, the franc was arguably too strong, and simple extrapolation from the SNB’s annual report suggests the central bank slowed FX sales by nearly half in Q4.

Following the December meeting, Jordan, who this month said he’ll depart the bank in 2024, indicated that with inflation stable below 2%, the economy staring at subdued growth and the franc perched at a record, the SNB was no longer focused on supporting the currency with FX sales and may switch back to intervening in the other direction.

Thursday’s rate cut suggests that whatever the bank decides to do with regard to FX interventions, they saw some utility in using the policy rate to engineer additional franc weakness atop that already seen in 2024, thereby giving them some cushion before the Fed and ECB start cutting.

The bank’s “taking into account the reduced inflationary pressure as well as the appreciation of the Swiss franc in real terms over the past year,” the statement read. Note that the bank’s projections for price growth are a country mile below last summer’s forecasts.

The hottest price growth will run over the forecast horizon is 1.5%, the bank said Thursday. Inflation’s expected to average 1.4% this year, 1.2% next and 1.1% in 2025, the SNB reckons. The projections assume a policy rate of 1.5% — so, the current policy rate after Thursday’s cut.

As a quick aside, there’s an important balance sheet discussion playing out in the background: The currency management effort in 2022 and 2023 saw the bank’s mountainous pile of assets shrink. If they start intervening to weaken the currency going forward, that process will reverse, which may not be desirable depending on who you ask. After tripling since 2010, the SNB’s balance sheet is second in size only to the BoJ’s as a share of GDP. It was larger on that basis than the BoJ’s before recent FX sales. A lot of the SNB’s assets are subject to enormous mark-to-market losses, which is why the OECD recently described the balance sheet reduction that came about as a result of the effort to support the franc during the inflationary period as “a welcome side effect.”

The franc fell sharply following Thursday’s rate cut. Mission accomplished, I suppose. Still, with peers set to start cutting in just a few months, the SNB will have to stay vigilant, particularly in the event some adverse development comes along and stokes a haven bid for the franc.

Speaking of peers, the Bank of England decision on Thursday found the MPC’s hawks throwing in the towel. The vote split to keep Bank rate on hold was 8-1. Dhingra’s preference for a cut was the lone dissent at the March meeting.

Given there was no chance of a cut Thursday, all eyes were on that vote split. Recall that Dhingra’s call for a reduction at February’s MPC was the first vote for a cut of the post-pandemic era and it clashed with two votes for a hike. Those two votes are now gone, leaving only the dovish dissent.

The BoE softened its forward guidance last month. The new statement retained the customary nod to keeping policy restrictive for as long as necessary, but said current settings are “bearing down on inflationary pressures.” The bank’s taking a data-dependent approach to determining “how long” rates “should be maintained at current level[s].”

Although Andrew Bailey said the BoE’s “not yet at the point where we can cut interest rates,” what mattered Thursday, in my view anyway, was the absence of the hawkish dissents. That’s a clear indication that the discussion around rate cuts will gather momentum from here.

Inflation data released earlier this week showed price growth in the UK was the slowest in two and half years last month, even as services inflation remained far too high. A drop in energy prices pretty much guarantees that headline inflation will recede to the BoE’s target over the next several months. The question, as ever, is how long it stays there.