The SNB opted to cut its policy rate by 25 basis points to 1.50 percent at its March Monetary Policy Assessment (MPA). The move came ahead of most market expectations which saw the reduction being deferred until June. This is the first time that the benchmark rate has been lowered since January 2015 when the exchange rate target floor was also abandoned. In addition, the central bank indicated that it remains willing to be active in the foreign exchange markets as and when required. This suggests that it remains keen to keep the Swiss franc broadly stable.

Today's decision reflects the persistent and unexpected weakness of inflation with both overall and core rates having been below 2 percent since the middle of last year. Indeed, even with a policy rate of 1.5 percent, the SNB's updated economic forecasts put the overall inflation rate at just 1.1 percent in 2026. This is within the boundaries of the bank's price stability definition but, if anything, warns that policy might still be too tight. In fact, the entire forecast profile is well below that contained in the December MPA.

In terms of the real economy, growth is expected to remain modest over coming quarters. In part, this is due to the expected sluggish overseas demand together with the effects of the appreciation of the franc in real terms. GDP is forecast to grow around 1 percent this year and is thought likely to be accompanied by a gradual increase in unemployment and a further decline in capacity utilisation.

Today's announcement will not come as a major surprise as speculation about a cut had been steadily building for some time. Nonetheless, the overall tone of the MPA statement is surprisingly dovish by SNB standards and suggests that another reduction in the policy rate may not be too far away.

The majority of forecasters see no move on the policy rate until at least the next MPA in June. However, persistently sub-2 percent inflation means that a 25 basis point cut is at least a possibility.

The Swiss National Bank (SNB) usually announces any changes to its monetary stance at its quarterly Monetary Policy Assessment. However, adjustments can be made at any time. Since 2000 monetary policy has consisted of the following three elements: a definition of price stability, a medium-term inflation forecast and a target range for a reference interest rate, the three-month Swiss franc Libor (London Interbank Offered Rate). The SNB attempts to secure an annual inflation rate as specified by the consumer price index (CPI) of less than 2 percent. In recent times this has involved sizeable intervention in the foreign exchange market to prevent appreciation of the Swiss franc although since January 2015 there has been no explicit exchange rate target.

The aim of the SNB's monetary policy is to ensure price stability in the medium and long term. By keeping prices stable (2 percent annual inflation rate), the SNB seeks to create an environment in which the economy can fully exploit its production potential. The Bank is required to set its policy to meet the needs of the Swiss economy as a whole rather than the interests of individual regions or industries.

The SNB has traditionally implemented its monetary policy by fixing a target range of 1.0 percentage points at the level deemed appropriate for the three-month Swiss franc Libor. The Bank has then normally sought to hold the rate around the middle of that corridor. However, as a result of strong capital inflows into the local currency prompted by the 2008/09 global downturn, this objective range has been both narrowed and reduced to just 0.0 - 0.25 percent, with a point target of 0.0 percent. In fact, since September 2011 the thrust of policy has been determined largely by the SNB's expressed aim of preventing the CHF strengthening beneath a CHF1.20 floor versus the euro.

The Swiss National Bank publishes its monetary policy assessments on a quarterly basis in March, June, September and December. In these reports it describes the current monetary environment and formulates its monetary policy intentions for the following quarter. It also provides inflation forecasts which help financial markets to formulate of where monetary policy might be headed. Twice a year -- in June and in December -- the Bank holds a media conference. At that time, the Governing Board provides information about the economic situation and comments on its monetary policy.