Swiss National Bank Cuts Interest Rates to Zero Percent

The Swiss National Bank (SNB) has cut interest rates to zero percent due to cooling inflation and a strengthening franc, as well as a deteriorating economic outlook. This decision was made on Thursday, and it marks a significant shift in the bank’s monetary policy.

Economic Outlook

The SNB has stated that the global economic outlook for the coming quarters has deteriorated due to increased trade tensions. The bank expects growth in the global economy to weaken over the coming quarters, with developments abroad representing the main risk. The outlook for Switzerland remains uncertain, and the bank expects growth to slow again and remain subdued for the rest of the year.

Impact of Trade Tensions

The Swiss currency, known for being a safe-haven investment, has climbed against the dollar since US President Donald Trump launched his tariff blitz in April. The SNB has denied manipulating the franc, stating that its interventions in the foreign exchange market aim to ensure price stability, not unduly increase the Swiss economy’s competitiveness.

Cooling Inflation

The SNB said Swiss gross domestic product growth was strong in the first quarter of the year, largely due to exports to the United States being brought forward ahead of Trump’s tariff maneuvers. However, stripping that factor out, growth was more moderate, and is likely to slow again and remain subdued for the rest of the year. The SNB expects GDP growth of one percent to 1.5 percent for 2025 and 2026.

Inflation Forecast

The bank lowered its inflation forecast for 2025 from 0.4 percent to 0.2 percent, and for 2026 from 0.8 percent to 0.5 percent. The consumer price index even fell into negative territory in May, at minus 0.1 percent. This cooling inflation is a significant factor in the SNB’s decision to cut interest rates to zero percent.

Negative Rates

Between 2015 and 2022, the SNB’s monetary policy was based on a negative interest rate of minus 0.75 percent, which increased the cost of deposits held by banks and financial institutions relative to the amounts they were required to entrust to the central bank. This policy left a bitter memory for major savers, who bore the brunt of fees, while pension funds were forced into riskier investments.

Expected Future Moves

Analysts expect the SNB to move rates to negative 0.25 percent at its September meeting due to deflation. There are also significant downside risks to inflation from trade tensions as well as heightened geopolitical uncertainty, which could push up the value of the franc further.

Conclusion

In conclusion, the Swiss National Bank’s decision to cut interest rates to zero percent is a response to the cooling inflation and deteriorating economic outlook. The bank’s interventions in the foreign exchange market aim to ensure price stability, and it is expected to continue monitoring the situation and making adjustments as necessary. The future of the Swiss economy remains uncertain, and it will be important to watch how the bank’s policies evolve in response to changing global economic conditions.