The Swiss National Bank’s Governing Board in Zurich, led by Jean-Pierre Roth, lowered the three-month Libor target by 50 basis points, matching the median of 18 estimates in a Bloomberg survey. The rate for borrowing francs for three months in London was at 1.14 percent yesterday. It fell to 0.86 percent today.
The SNB’s decision takes it closer to being the first central bank in Europe to reduce its benchmark to zero as the financial crisis saps growth across the Swiss economy. As policy makers run out of room to reduce the key rate, Roth may need to follow the U.S. Federal Reserve and announce new tools to revive growth.
The SNB’s options are narrowing after it also cut the one- week rate it uses to steer three-month borrowing costs to 0.05 percent from 0.1 percent.
Board member Thomas Jordan said further steps could include extending the maturities of money-market transactions or intervening in markets other than the money market” adding that the time has not yet come to use such instruments.
Under quantitative easing the central bank injects more reserves into the banking system than needed. A weaker franc stimulates the economy by making exports more competitive and lower bond yields encourage investment elsewhere.
Credit market turmoil is hurting Switzerland, where financial companies from insurers to mortgage lenders make up more than 20 percent of the economy. Credit Suisse Group AG, Switzerland’s second-largest bank, will eliminate 5,300 jobs and scrap bonuses for its top executives after about 3 billion francs ($2.5 billion) of losses in the past two months, the company said on Dec. 4.
Swiss leading indicators fell to the lowest in more than five years last month, manufacturing contracted at the fastest pace since at least 1995 and unemployment is rising. Companies like Rieter Holding AG and Schmolz & Bickenbach AG have cut sales forecasts.