The Swiss National Bank reduced its main policy rate by 25 basis points from 1.50 percent to 1.25 percent at its quarterly Monetary Policy Assessment held today. This follows a rate cut of 25 basis points in March. Forecasters were divided on whether the SNB would leave rates on hold or cut by 25 basis points, resulting in a median forecast for a cut of 12.5 basis points. Officials also reiterated today that they remain willing to be active in the foreign exchange market"as necessary".

Since the previous MPA in March, GDP data had shown another quarter of subdued growth, with the economy expanding by 0.6 percent on the year in the three months to March after an increase of 0.5 percent in the three months to December. Price pressures, meanwhile, eased and then picked up, with headline inflation falling from 1.2 percent in February to 1.0 percent in March before increasing to 1.4 percent in both April and May.

The statement accompanying today's decision noted that Swiss growth is likely to"remain moderate" in coming quarters before improving"gradually" over the medium-term. Officials forecast annual GDP growth of around 1.0 percent in 2024 and 1.5 percent in 2025 but warned of external risks to this outlook.

Officials also expect unemployment to rise slightly in the near-term and for capacity pressures to moderate. Based on an assumption that policy rates remain unchanged over the forecast period, the SNB now forecasts annual inflation of 1.3 percent in 2024, 1.1 percent in 2025, and 1.0 percent in 2026.

Officials concluded today that a further reduction in policy rates would allow them to"to maintain appropriate monetary conditions". Officials promised to"adjust our monetary policy if necessary to ensure inflation remains within the range consistent with price stability over the medium term" but they provided little indication of whether they believe additional rate cuts will be required in upcoming meetings.

After surprising the markets with a 25-basis-point cut in March, forecasters are uncertain what to expect for June's meeting, from no change to rate cuts of 12.5 or 25 basis points with the former Econoday's median estimate. At 1.4 percent, consumer inflation is low in Switzerland while the Swiss franc, which had been weak, has recently firmed.

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.