The Swiss National Bank (SNB) held its interest rate at 0% on Thursday, concluding that the softer inflation outlook does not yet warrant a move back to negative rates.
Thursday’s decision represents the second consecutive quarter with an unchanged benchmark rate and aligned with the expectations of all 23 economists surveyed by Bloomberg.
Market participants had similarly anticipated only a minimal likelihood of a rate cut.
“Inflation in recent months has been slightly lower than expected,” said an SNB statement. “Although the conditional inflation forecast is somewhat lower in the short term than in September, there is only little change in the medium term. The forecast is within the range of price stability.”
Following the decision, the Swiss Franc pared earlier gains, trading 0.1% higher at 0.9348 per Euro. Against the Dollar, it rose 0.2% to 0.7986, reaching its strongest level since 19th November.
Although the US Federal Reserve’s quarter-point rate move just before the SNB decision could have added pressure by narrowing the gap between the two countries’ borrowing costs, rising global bond yields and the uncertain outlook for US policy next year may have provided some reassurance, Bloomberg reports.
Confronted with the choice between a weak inflation outlook or reinstating Switzerland’s seven-year subzero rate policy, which is known to have harmed pensions, savers, and the financial system, the SNB chose to keep rates unchanged this time.
The central bank lowered its inflation forecast to 0.3% for next year and 0.6% for 2027, down from previous estimates of 0.5% and 0.7%, respectively. Its projection for this year remains unchanged at 0.2%.
Furthermore, consumer-price growth has fallen short of economists’ expectations for three consecutive months, dropping to zero last month and effectively ruling out the SNB’s anticipated rebound for the current quarter.
One challenge is the Swiss Franc, which jumped to a decade-high against the Euro last month before slightly retreating. The currency’s strength puts downward pressure on prices by making imports less expensive.
The latest factor behind the Franc’s gains was Switzerland securing a trade agreement with the US, ending months of being subjected to the highest tariffs levied on any advanced economy.
Moreover, the SNB expects GDP growth of just under 1.5% in 2025, slowing to around 1% in 2026, with unemployment likely to rise modestly amid subdued economic activity, Trading View reports.