| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Change | -25bp | -50bp to -25bp | -25bp | -25bp |
| Level | 0.0% | -0.25% to 0.0% | 0% | 0.25% |
Highlights
The Swiss National Bank lowered its policy rate by 25 basis points to zero, as anticipated by economists. A minority expected a larger cut which would have kicked off another era of negative rates, a regime the SNB exited in September 2022 after seven years.
In its assessment following the decision, the SNB specifically mentioned trade, noting increased trade tensions are dampening the global economic outlook. It was also concerned additional barriers could be implemented, accelerating the global economic slowdown. The Swiss economic outlook is presently uncertain, with the main risks coming from abroad.
Earlier today, Switzerland reported that its trade surplus nearly halved in May to 3.381 billion Swiss francs from 6.325 billion the previous month, with exports to the US dropping by over 40 percent for two consecutive months. The strong Swiss franc can also have a dampening effect on exports, and the SNB repeated its willingness to be active in foreign exchange markets if necessary.
The central bank sees no inflation threats in the near term. It lowered its 2025 inflation forecast to 0.2 percent from 0.4 percent and that for 2026 from 0.8 percent to 0.5 percent from its March forecast. Those results were based on the assumption the policy rate remains at zero for the forecast horizon, and that without today's rate cut, the forecast would have been lower.
While it expects moderating inflation in Switzerland and Europe, it sees prices rising in the US. Left unsaid was that tariffs act as an inflationary trigger on the country imposing them.
With no threat of inflation and a slowing global economy, the stage is set for the SNB to again enter a negative era of interest rates. This is likely to become reality when the policy makers meet again in September.
In its assessment following the decision, the SNB specifically mentioned trade, noting increased trade tensions are dampening the global economic outlook. It was also concerned additional barriers could be implemented, accelerating the global economic slowdown. The Swiss economic outlook is presently uncertain, with the main risks coming from abroad.
Earlier today, Switzerland reported that its trade surplus nearly halved in May to 3.381 billion Swiss francs from 6.325 billion the previous month, with exports to the US dropping by over 40 percent for two consecutive months. The strong Swiss franc can also have a dampening effect on exports, and the SNB repeated its willingness to be active in foreign exchange markets if necessary.
The central bank sees no inflation threats in the near term. It lowered its 2025 inflation forecast to 0.2 percent from 0.4 percent and that for 2026 from 0.8 percent to 0.5 percent from its March forecast. Those results were based on the assumption the policy rate remains at zero for the forecast horizon, and that without today's rate cut, the forecast would have been lower.
While it expects moderating inflation in Switzerland and Europe, it sees prices rising in the US. Left unsaid was that tariffs act as an inflationary trigger on the country imposing them.
With no threat of inflation and a slowing global economy, the stage is set for the SNB to again enter a negative era of interest rates. This is likely to become reality when the policy makers meet again in September.
Market Consensus Before Announcement
With Swiss inflation falling below zero and the franc strong, forecasters see the SNB cutting its policy rate by another 25 basis points to zero. The minority view looks for a 50 bp cut into negative territory to -0.25 percent.
In these uncertain days for the global economy, Switzerland has been and is once again a safe-haven for investors. That has driven the Swiss franc around nine percent higher versus the US dollar since the beginning of the year.
The stronger currency is a bulwark against imported inflation, but also has drawbacks, making Swiss exports more expensive. In a story run by Keystone SDA last month, Swiss National Bank President Martin Schlegel said the SNB stands ready to intervene, if necessary, in the foreign exchange markets. This is hardly new language, but shows the central bank’s determination to address policy challenges.
With inflation barely visible, rising 0.1 percent in May from April and falling -0.1 percent a year ago, this scenario gives the SNB further scope to continue reducing interest rates, having lowered its policy rate to 0.25 percent at its most recent meeting in March.
When the keepers of the stable franc meet on June 19, it is a relatively safe bet whey will cut interest rates to zero. This will bring it back to the brink of a negative interest rate policy which it entered in January 2015, finally exiting in September 2022, raising its rate from minus 0.25 percent to 0.50 percent.
In the same Keystone story, Schlegel set the tone for future rate developments saying that “If necessary, we are prepared to consider reintroducing a zero interest rate, or even a negative interest rate (monetary) policy.”
How long such a policy would last is certainly very much dependent on unfolding developments in the global markets, tariffs, and the recent attack by Israel on Iran to degrade its nuclear capabilities. Fuel and energy prices have been acting to keep inflation at bay, but that could also change should the conflict widen.
In these uncertain days for the global economy, Switzerland has been and is once again a safe-haven for investors. That has driven the Swiss franc around nine percent higher versus the US dollar since the beginning of the year.
The stronger currency is a bulwark against imported inflation, but also has drawbacks, making Swiss exports more expensive. In a story run by Keystone SDA last month, Swiss National Bank President Martin Schlegel said the SNB stands ready to intervene, if necessary, in the foreign exchange markets. This is hardly new language, but shows the central bank’s determination to address policy challenges.
With inflation barely visible, rising 0.1 percent in May from April and falling -0.1 percent a year ago, this scenario gives the SNB further scope to continue reducing interest rates, having lowered its policy rate to 0.25 percent at its most recent meeting in March.
When the keepers of the stable franc meet on June 19, it is a relatively safe bet whey will cut interest rates to zero. This will bring it back to the brink of a negative interest rate policy which it entered in January 2015, finally exiting in September 2022, raising its rate from minus 0.25 percent to 0.50 percent.
In the same Keystone story, Schlegel set the tone for future rate developments saying that “If necessary, we are prepared to consider reintroducing a zero interest rate, or even a negative interest rate (monetary) policy.”
How long such a policy would last is certainly very much dependent on unfolding developments in the global markets, tariffs, and the recent attack by Israel on Iran to degrade its nuclear capabilities. Fuel and energy prices have been acting to keep inflation at bay, but that could also change should the conflict widen.
Definition
The Swiss National Bank (SNB) usually announces any changes to its monetary stance at its quarterly Monetary Policy Assessment. However, adjustments can be made at any time. Since 2000 monetary policy has consisted of the following three elements: a definition of price stability, a medium-term inflation forecast and a target range for a reference interest rate, the three-month Swiss franc Libor (London Interbank Offered Rate). The SNB attempts to secure an annual inflation rate as specified by the consumer price index (CPI) of less than 2 percent. In recent times this has involved sizeable intervention in the foreign exchange market to prevent appreciation of the Swiss franc although since January 2015 there has been no explicit exchange rate target.
Description
The aim of the SNB's monetary policy is to ensure price stability in the medium and long term. By keeping prices stable (2 percent annual inflation rate), the SNB seeks to create an environment in which the economy can fully exploit its production potential. The Bank is required to set its policy to meet the needs of the Swiss economy as a whole rather than the interests of individual regions or industries.
The SNB has traditionally implemented its monetary policy by fixing a target range of 1.0 percentage points at the level deemed appropriate for the three-month Swiss franc Libor. The Bank has then normally sought to hold the rate around the middle of that corridor. However, as a result of strong capital inflows into the local currency prompted by the 2008/09 global downturn, this objective range has been both narrowed and reduced to just 0.0 - 0.25 percent, with a point target of 0.0 percent. In fact, since September 2011 the thrust of policy has been determined largely by the SNB's expressed aim of preventing the CHF strengthening beneath a CHF1.20 floor versus the euro.
The Swiss National Bank publishes its monetary policy assessments on a quarterly basis in March, June, September and December. In these reports it describes the current monetary environment and formulates its monetary policy intentions for the following quarter. It also provides inflation forecasts which help financial markets to formulate of where monetary policy might be headed. Twice a year -- in June and in December -- the Bank holds a media conference. At that time, the Governing Board provides information about the economic situation and comments on its monetary policy.
The SNB has traditionally implemented its monetary policy by fixing a target range of 1.0 percentage points at the level deemed appropriate for the three-month Swiss franc Libor. The Bank has then normally sought to hold the rate around the middle of that corridor. However, as a result of strong capital inflows into the local currency prompted by the 2008/09 global downturn, this objective range has been both narrowed and reduced to just 0.0 - 0.25 percent, with a point target of 0.0 percent. In fact, since September 2011 the thrust of policy has been determined largely by the SNB's expressed aim of preventing the CHF strengthening beneath a CHF1.20 floor versus the euro.
The Swiss National Bank publishes its monetary policy assessments on a quarterly basis in March, June, September and December. In these reports it describes the current monetary environment and formulates its monetary policy intentions for the following quarter. It also provides inflation forecasts which help financial markets to formulate of where monetary policy might be headed. Twice a year -- in June and in December -- the Bank holds a media conference. At that time, the Governing Board provides information about the economic situation and comments on its monetary policy.
