The Swiss National Bank cut its interest rate to zero today in response to falling inflation, appreciation pressure on the Swiss franc and economic uncertainty caused by the US administration’s unpredictable trade policy.
The SNB reduced its policy rate by 25 basis points from 0.25%, as expected by markets and a Reuters poll.
It was the central bank’s sixth rate cut in succession after it started reducing borrowing costs in March 2024.
The SNB is now on the brink of returning to negative interest rates, a policy it maintained from 2014 to 2022, but which was unpopular with banks, savers and insurance companies.
“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.
The rate cut came after Swiss annual inflation in May turned negative for the first time in four years, moving outside of the SNB’s 0-2% target range. The Swiss franc briefly strengthened after the decision, but retreated to trade steady on the day against the dollar at 0.8191 francs.
SNB Chairman Martin Schlegel said low inflation and weak price pressures had helped spur the decision to trim rates and that the bank would decide its next steps in September.
“We would not take the decision to go negative lightly. We are well aware negative interest rates are a challenge for many actors in the economy, but also for savers, for pension funds, and so on,” he said, mentioning higher property prices as one of the possible side effects.
In its baseline scenario, the SNB has global economic growth weakening and US inflation rising in coming quarters. In Europe, it saw inflationary pressure decreasing.
The central bank said the outlook for the world economy remained subject to high uncertainty. Trade barriers could be raised further, leading to a more pronounced slowdown in the global economy, it noted. But it cannot be ruled out that fiscal policy will support growth more strongly than expected, it said.
The Swiss move comes on a busy day for central banks, with Norway’s central bank surprising markets with its first rate cut in five years, and the Bank of England rate decision due later.
The US Federal Reserve held its interest rates steady last night, but signalled they could fall later this year, while the European Central Bank trimmed its interest 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 UBS economist Alessandro Bee, referring to sweeping tariffs US President Donald Trump announced in April.
“The SNB wants to prevent a further appreciation of the franc, which could help the Swiss exporters and also prevent inflation falling ever further,” he added.
Although inflation was only slightly negative in May, the full impact of the franc’s strength will only be seen in coming months, said EFG senior economist GianLuigi Mandruzzato.
He said the SNB was likely to pause at zero, unless there was a significant downturn in the Swiss economy caused by higher US tariffs.
“All options remain on the table, including negative interest rates and foreign exchange market interventions, but for them to be deployed, a further, meaningful deterioration of the outlook would be needed,” he added.
The SNB took rates to zero after the franc, buoyed by safe-haven flows, has gained roughly 11% against the dollar in 2025, pushing down inflation by making imports cheaper.
The SNB says it will intervene in foreign currency markets if necessary to keep inflation on track, although two weeks ago, Washington added Switzerland to a list of countries being monitored for unfair currency and trade practices.
