Swiss National Bank cuts rates to zero as inflation turns negative, global risks mount
ZURICH: The Swiss National Bank (SNB) lowered its key interest rate to zero per cent on Thursday, citing weakening inflation, sustained strength in the Swiss franc, and growing uncertainty surrounding the global economic outlook.
The SNB reduced its policy rate by 25 basis points from 0.25 per cent, in line with market expectations and a Reuters poll. It was the central bank's sixth straight cut since it began easing in March 2024.
The move brings Switzerland back to the brink of negative interest rates, a policy last seen from 2014 to 2022, and one that was deeply unpopular with banks, savers, and insurers.
"Inflationary pressure has decreased compared to the previous quarter. With today's easing of monetary policy, the SNB is countering the lower inflationary pressure," the central bank said in a statement.
Swiss annual inflation turned negative in May for the first time in four years, slipping outside the SNB's target range of 0–2 per cent.
Although the franc initially strengthened after the announcement, it later traded steady against the US dollar at 0.8191.
In its baseline scenario, the SNB said it expects global economic growth to weaken in the coming quarters, with inflation rising in the United States but falling further in Europe. The bank also highlighted persistent risks due to potential increases in trade barriers and escalating geopolitical tensions.
"The outlook for the world economy remains subject to high uncertainty," the SNB said, adding that stronger-than-expected fiscal support in some economies could offset the downside risks.
Pressure from a strong franc
The SNB's move comes amid a flurry of central bank decisions. Earlier Thursday, Norges Bank unexpectedly cut rates for the first time in five years, while the Bank of England is due to announce its decision later in the day. The US Federal Reserve held its policy rate steady on Wednesday, though signalled that rate cuts remain on the table later this year. The European Central Bank trimmed its own rate by 25 basis points earlier this month.
"The SNB has cut rates because the franc is stronger and the economic outlook in Switzerland is weaker following the 'Liberation Day' tariffs," said Alessandro Bee, economist at UBS, referring to the sweeping trade tariffs introduced by US President Donald Trump in April.
"The SNB wants to prevent a further appreciation of the franc, which could help Swiss exporters and also prevent inflation falling further."
EFG senior economist GianLuigi Mandruzzato said that although May's inflation decline was modest, the real impact of the stronger franc on consumer prices would likely materialise in the coming months. He added that the SNB may now pause its rate cuts, barring a significant economic downturn.
"All options remain on the table, including negative interest rates and foreign exchange market interventions," said Mandruzzato. "But for them to be deployed, a further, meaningful deterioration of the outlook would be needed."
Two-year Swiss government bond yields remain in negative territory, signalling that markets expect the SNB may dip below zero in the coming months.
The franc has gained around 11 per cent against the dollar so far in 2025, as risk-averse investors piled into safe-haven assets. This has had a disinflationary effect by reducing the cost of imported goods.
Although the SNB has left the door open for foreign exchange interventions, the US Treasury Department recently added Switzerland to its watchlist of countries being monitored for potential currency manipulation.
"The SNB's main concern may not be avoiding the impression of being a currency manipulator," said Karsten Junius, chief economist at J. Safra Sarasin. "Still, it is politically wise not to appear too trigger-happy to go negative with the policy rate."
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