INSTANT VIEW-Swiss National Bank hits franc with surprise rate cut

LONDON/ZURICH, March 21 (Reuters) - The Swiss National Bank cut its main interest rate by 25 basis points to 1.50% on Thursday, a surprise move which made it the first major central bank to dial back tighter monetary policy aimed at tackling inflation.

The franc dropped after the decision, pushing the euro to its highest against the Swiss currency since mid-July last year, while Swiss government bond yields plunged.

MARKET REACTION:

STOCKS: Zurich's SMI index rose 1.3% on the day, outperforming Europe's STOXX 600 benchmark index.

FOREX: The Swiss franc weakened broadly, pushing up the euro by as much as 1% to 0.978, its highest since last July, while the dollar gained as much as 1.2% to touch a session peak at 0.898.

MONEY MARKETS: Swiss 10-year bond yields fell 12 basis points on the day to 0.665%, set for their biggest one-day drop since April last year, according to Tradeweb

COMMENTS:

JUSTIN ONUEKWUSI, CIO, ST JAMES'S PLACE, LONDON:

"We're in a global loosening cycle and it is about the timing of moves."

"It does surprise us a little that they (the SNB) have gone early. It was 50-50 for a move.

"Central banks in general will err on the side of the caution."

COLIN ASHER, SENIOR ECONOMIST, MIZUHO BANK, LONDON:

"The scale of the inflation problem in Switzerland has never been particularly large, and the Swiss National Bank is not at risk of inflation expectations becoming unanchored.

"Consequently, with the inflation outlook benign, the Swiss National Bank has felt free to ease policy. The SNB only meets every quarter, and in the wake of the dovish Fed meeting, it's certainly possible that other central banks would have leapfrogged by the time the next meeting comes around, and that has helped them get over the line this time."

JAN VON GERICH, CHIEF ANALYST, NORDEA, HELSINKI:

"It's the first central bank in the developed world to ease so that shows the direction where the others are going.

"The SNB was always the first likely mover, so this shouldn't have an impact on what the others will do.

"But from the markets' point of view, this does open the door to what could happen elsewhere.

"Swiss inflation numbers have been softer than in the euro area, so it was a question of whether the SNB would move at this meeting or the next one."

(Reporting by EMEA markets team; Editing by Amanda Cooper and Dhara Ranansinghe)