On Thursday, major European central banks announced rate cuts to counter potential economic impacts from Trump's possible tariff increases and geopolitical tensions. The European Central Bank (ECB) and the Swiss National Bank (SNB) both implemented rate cuts, followed by Denmark's central bank, sparking a wave of "rate cuts." Meanwhile, the Bank of Canada also decided to cut rates due to concerns over trade policies, adding to the signals of global monetary easing.
Swiss National Bank's unexpected sharp rate cut
The Swiss National Bank lowered its benchmark interest rate by 50 basis points to 0.5%, the lowest since September 2022. This move far exceeded market expectations and reflects the central bank's high alertness to the fluctuations of the Swiss franc. The franc has long been seen as a safe-haven asset, and its strength has intensified external pressures on the Swiss economy. SNB Chair Martin Schlegel warned that further rate cuts or foreign exchange market interventions might be necessary, potentially even reinstating negative interest rates to stabilize the market and protect the economy.
Continued rate cuts by the ECB
The ECB again cut rates by 25 basis points this week, bringing rates to their lowest in a year and a half; this marks the ECB’s fourth rate cut this year. ECB President Christine Lagarde stated that "the policy direction is very clear" and anticipated further cuts in 2024 and 2025. Sources indicated that the ECB might cut rates by 25 basis points each in January and March next year to mitigate economic risks from trade conflicts and inflation pressures.
Additionally, the ECB adjusted its policy statement, clearly indicating no intention of limiting economic growth, and significantly lowered the growth forecast for 2024 to 2026. The eurozone's economic growth rate for 2025 was revised from 1.3% to 1.1%, highlighting a pessimistic outlook for the economic future. Lagarde noted that the eurozone economy faces "significant downside risks."
Denmark and Canada join the rate cut ranks
Following the ECB's policy announcement, Denmark's central bank also reduced borrowing costs, underscoring concerns over economic slowdown. Similarly, the Bank of Canada announced a 50 basis point rate cut on Wednesday, pointing out that Trump's trade policies could significantly impact Canada's economy.
Increasing trade and geopolitical risks
With Trump's return to the White House, markets fear he might again raise trade tariffs, exacerbating global economic uncertainty. Trade policy impacts have also prompted central banks in Switzerland and other countries to adopt more aggressive policies to stabilize exchange rates and financial markets. Geopolitical risks remain a significant challenge for various economies.
The Swiss National Bank specifically mentioned that the franc's safe-haven status makes it a target for speculation, further complicating policy-making.
Summary Amid the shadow of Trump's trade policies and geopolitical uncertainties, the European central banks' rate cuts reflect the urgency to address economic downturns. The wave of rate cuts may continue to expand in the coming months, and whether Europe can overcome its challenges remains to be seen.
