SNB move raises concerns over possible return to negative rates
The Swiss National Bank (SNB) lowered its benchmark interest rate by 25 basis points to 0% on Thursday, intensifying speculation that Switzerland may soon return to negative interest rates. The widely expected move comes as inflationary pressure remains weak and consumer prices fell 0.1% year-over-year in May.
“With today’s easing of monetary policy, the SNB is countering the lower inflationary pressure,” the central bank said. It also reaffirmed its commitment to price stability and signaled readiness to act further if necessary. The SNB now forecasts inflation to average just 0.2% in 2025 and 0.5% in 2026.
Currency strength a key factor in deflation risks
Despite global inflation concerns, Switzerland continues to experience deflationary pressures largely due to the strength of the Swiss franc. As a safe-haven currency, the franc has appreciated in recent months, reducing the cost of imports and putting downward pressure on consumer prices.
Charlotte de Montpellier of ING explained that Switzerland’s status as a small, open economy makes it especially sensitive to currency-driven inflation trends. To prevent further franc appreciation, the SNB is deliberately keeping rates lower than other economies.
Negative rate scenario not ruled out
Although SNB Chairman Martin Schlegel emphasized that short-term deflation is not in itself a reason to cut rates, he acknowledged the challenges of a persistently strong franc. Analysts including Capital Economics’ Adrian Prettejohn believe the SNB may cut rates into negative territory again this year, possibly as low as -0.75%.
Schlegel noted that negative rates remain a possibility but warned they would not be adopted lightly. “The hurdle to go negative is certainly higher,” he said, citing the risks such policies pose for financial markets and long-term stability.
Mixed reaction in markets
Following the announcement, the Swiss franc strengthened modestly against the U.S. dollar. While lower rates tend to weaken currencies, Switzerland’s policy path appears driven more by external factors than domestic inflation pressure.
Economists caution that negative rates, while stimulative, could erode savings, compress bank margins, and potentially distort financial markets. The SNB’s next rate decision is scheduled for September.
