SNB Unexpectedly Cuts 50 Basis Points

SNB Libor Rate Actual 2.00%, Previous 2.50%

Release Explanation: This is the Interbank overnight lending rate. It sets the tone for mortgages, commercial loans, and all economic lending criteria. An increase in Interest Rate will have the effect of slowing economic growth. A decrease in Interest Rate is used by a Central Bank to stimulate economic growth. Economic strength can create Inflation, raising Interest Rates is one of the easiest way to contain Inflation.

Trade Desk Thoughts: In an unexpected move, the Swiss National Bank has cut the Targeted 3-month Libor rate by 50 basis points, to the range of 1.5%-2.5%. This is the second time in the last month that the central bank has taken this action, after coordinated rate cuts.

Since the credit crunch began, the SNB lost control over the Libor rate, for a while, but gained it back as the bank flooded the market with Swiss Franc liquidity. In the bank's forecast the economy may face a recession next year.

The Interest Rate Statement: Swiss National Bank lowers target range for three-month Libor by 50 basis points to 1.5%-2.5%

The Swiss National Bank (SNB) is lowering the three-month Libor target range by 50 basis points to 1.5%-2.5% with immediate effect. It intends to hold the rate in the middle of the target range for the time being.

The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters; growth in 2009 might even be negative. Moreover, the economic slowdown, the decline in the price of oil and the appreciation of the Swiss franc are reinforcing the expected drop in inflation.

Today's relaxation of monetary policy provides an impetus to economic activity, and will not jeopardize the return to price stability.

The SNB will continue to provide the Swiss franc money market with liquidity in a generous and flexible manner, and will keep a close watch on the movement of the franc on the foreign exchange market.

Forex Technical Reaction: Because the interest rate announcement took the financial markets by surprise, the swissy traded very volatile after the release. The first reaction was a 80 pip long candle. The move was later retraced, but now the pair is trading again at the same area, 1.1750, which also was the high reached on Wednesday.

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