Undershooting market expectations, the SNB reduced its main policy rate by 50 basis points to 0.50 percent at December's Monetary Policy Assessment (MPA). The latest cut was the fourth in a row with the benchmark rate having already been lowered by 25 basis points in both March, June and September. Officials also reiterated today that they remain willing to be active in the foreign exchange market"as necessary".

Today's move reflects low inflation since the September MPA, in part attributed by the bank to the appreciation of the Swiss franc. As a result, the new forecast is slightly lower than last time. Hence, annual inflation is now seen at 1.1 percent this year (versus 1.2 percent in September), 0.3 percent in 2025 (0.6 percent) and 0.8 percent in 2026 (0.7 percent). The revised projection assumes that the SNB policy rate is 0.5 percent over the entire forecast horizon. Without today's cut, the new forecast would even be weaker.

In terms of the real economy, GDP growth is still expected to be quite modest at 1.0 percent in 2024 before accelerating slightly to 1.5 percent in 2025. Unemployment should continue to rise slightly while capacity utilisation declines. However, uncertainty surrounding the global economy remains high.

In sum, today's announcement will probably not come as a major surprise as significant speculation about a possible 50 bp cut had been building. Today's policy statement is clearly dovish and May not be the last this cycle.

The call is a fourth consecutive 25 basis point rate cut as the SNB combats rising deflation risk, the strong franc, and spillover from Germany's weak economy. However, it is a close call and an increasing number of forecasters anticipate a larger 50 basis point reduction.

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.