The Swiss National Bank (SNB) has brought interest rates down to 0% as a stronger Swiss Franc pushed inflationary pressures lower. The interest rate decision highlights Switzerland’s challenges with global trade disruptions and economic uncertainty.
Behind the Rate Cut
The SNB reduced rates to 0% to ease the Swiss Franc’s strength, which has caused inflation to move below zero for the first time since 2021.
The Swiss Franc appreciated 2% this year due to the ongoing uncertainties over tariff concerns and geopolitical tensions, which triggered safe-haven demand for the currency. The strength in the Swiss Franc has caused exports to decline and lowered consumer prices. ⁽¹⁾
The SNB stated that inflationary pressures have fallen compared to the previous quarter. The central bank will continue to monitor the situation closely and adjust its monetary policy if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term. The SNB lowered its forecast for inflation to 0.2% for 2025, 0.5% for 2026 and 0.7% for 2027. ⁽²⁾
Following the strong first quarter, growth is likely to slow and remain rather subdued over the remainder of the year due to the appreciation of the Swiss franc and weaker global demand. GDP is expected to grow 1% to 1.5% for 2025 and 2026. Unemployment is likely to continue to rise slightly. ⁽³⁾
The economic outlook for Switzerland remains uncertain. Developments abroad continue to represent the main risk.
Global Trade Concerns and US Policies
The global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions. Monetary policy has been left unchanged in the US. In the Euro area, monetary policy has been eased further.
The SNB expects growth in the global economy to weaken over the coming quarters. The higher US import tariffs are likely to curb global trade and lead to a loss of purchasing power for US consumers. ⁽⁴⁾
Furthermore, the high level of trade policy uncertainty putting pressure on global investment momentum. Inflation in the US is likely to rise over the coming quarters. In Europe, a further decrease in inflationary pressure is expected. ⁽⁵⁾
US trade tariffs impacted Switzerland’s economy by boosting the Swiss Franc, as the currency is regarded as a safe-haven asset. In Q1, the Franc touched a decade-high against the US dollar, pushing the inflation rate below zero for the first time since early 2021. ⁽⁶⁾
Possibility of Negative Interest Rates
By going as low as zero, SNB officials are not only ending more than 2.5 years of positive rates but could set the lowest benchmark for any major central bank. They are also experimenting with a specific level that the central bank never tested when it adopted negative borrowing costs. ⁽⁷⁾
That will challenge Swiss banks, as it eliminates income from deposits while also compressing margins on loans and mortgages. If the Swiss Franc continues to strengthen, the SNB may consider negative interest rates, a policy it used from 2014 to 2022. ⁽⁸⁾
SNB President Martin Schlegel noted that while unpopular, this option remains on the table. Some economists believe negative rates could return as early as this year.
