Swiss Central Bank First to Announce Reduced Interest Rates, Critical for Bullish Bitcoin

The Swiss National Bank (SNB) on Thursday, March 21, announced cuts to the benchmark interest rate to defy the global trend where other central banks stuck to the elevated rates. The move to cut rates by 25 basis points is significant, with economists hopeful that the European Central Bank (ECB) would follow. 

Should other central banks replicate the SNB move, it could signal an optimistic run for the crypto markets. The crypto markets have previously aligned price movement with global macroeconomic policy. 

Swiss National Bank Announces Cut on Interest Rate 

The Thursday statement by SNB illustrated that the country’s inflation has declined below 2% for several months. The central bank explained that the rate is within the range it equates with price stability, necessitating a cut in the benchmark rate.

A reflection on the inflation rate witnessed in Switzerland reveals that the inflation rate declined to 1.2% in February. The SNB forecasts the inflation rate to average 1.4% this year and decline to 1.2% in 2025. 

The new policy by SNB is 1.5%, 25 basis points from the 1.75% the Swiss central bank has maintained since mid-2023. Before June’s decision, SNB raised the rates for 12 months from the -0.75% it held since the onset of 2015. 

A Reuters publication of an economists’ poll captures the admission that they projected the SNB to sustain the elevated rates for several months. The sudden move eroded the yields for Swiss government bonds alongside the Swiss Franc value against the US dollar and Euro. 

Swiss Central Bank Buck from Global Trend

The SNB bucked from the US Federal Reserve (Fed) trend to maintain a target range between 5.25% and 5.50%. Investors were keenly attracted to the Fed decision given the previous week’s news that February witnessed hotter inflation than expected. 

The Wednesday update issued by the Fed cited the Federal Open Markets Committee (FOMC) findings that the US economic outlook was uncertain, necessitating static interest rates and maintaining a high level of attention to inflation risks. 

The ECB is projected to replicate the Fed’s decision to leave the rates unchanged, with economists expecting it to maintain the 4.5% during the April meeting. While the US and Europe have inflation above 2%, economists forecast that the central banks will lower rates possibly by June. 

The move by SNB is favorable to the risk-on assets category, including equities and crypto, which historically suffered sell-offs during hot inflation periods. While the Fed avoided tightening monetary policy, higher inflation would leave such a decision inevitable.  

The OTC Capital chief executive, Brian Dixon, indicated that it was essential to note that rate fluctuations only yield short-term movement for crypto. The executive noted that Bitcoin traders often embrace the market sentiment. 

Auditing Bitcoin’s price movement reveals that the largest crypto by market capitalization plunged after topping $69,000 in November 2021. The slide coincided with the Fed announcing intentions to increase the benchmark rate to combat inflation. 

The Fed’s move resulted in a series of bankruptcies witnessed in 2022 as the Fed unveiled the fiercest tightening cycle. 

Benchmark Rates Cut Could Propel Bitcoin Price Rally

Previously, Bitcoin had rallied from $3,500 to $64,000 within 13 months of the Fed’s March 2020 decision to lower the benchmark rate to 25 basis point. 

Some analysts consider that macroeconomic factors are dictating Bitcoin’s price presently. The Bitcoin price has ballooned below $15,000 in 2023, navigating the US banking crises, a wave of spot exchange-traded funds (ETF) approvals, and strained liquidity.

Reflexivity Research co-founder Will Clemente noted on Wednesday via a post on X that individuals are hyper-focused on the benchmark rate cuts in the present era of fiscal dominance. The pronouncement resonated with the market response, with Bitcoin’s price rebounding to test $67,000 hours after the Fed’s meeting. 

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