In a surprise move, the Swiss National Bank has announced that it has lowered its base rate by 1% with immediate effect - the third reduction since October.
The bank stated that the rate cut will provide the Swiss franc money market with a generous and flexible supply of liquidity in order to bring the Libor down to the middle of the target range. It is the third unscheduled move since the beginning of October and is the largest cut since the bank began targeting the London Interbank Offer Rate (Libor) in 2000.
According to the SNB, as a result of the decline in the prices of raw materials and oil, price stability will be restored sooner than expected, and inflation is likely to fall below 2% as early as the end of this year. Moreover, international economic conditions have worsened appreciably, bringing a higher risk of a marked slowdown in economic activity in Switzerland next year. By lowering the Libor target range by 100 basis points, the SNB is making use of its room for manoeuvre.
The SNB has said it will continue to closely monitor the situation on the money and foreign exchange markets.
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