Swiss National Bank Cuts Interest Rate to Zero, Hints at Possible Return to Negative Rates

 

ZURICH, June 19 – The Swiss National Bank (SNB) reduced its policy interest rate to 0% on Thursday, edging closer to negative territory for the first time since 2022. While the central bank emphasized that it would be cautious about taking rates below zero, it did not completely rule out the possibility.

The SNB lowered its key rate by 25 basis points from 0.25%, a move widely expected by financial markets and confirmed by a Reuters poll. This latest cut places Switzerland's borrowing costs at the lowest among major central banks, with traders now pricing in a 53% chance of another rate cut in September.

SNB Chairman Martin Schlegel underlined the risks associated with negative interest rates, describing them as a serious step. “As a central bank, you can never exclude measures, but the hurdle is higher now,” he told reporters.

The decision to reduce rates was driven by the SNB’s goal of keeping inflation within its target range of 0–2%, which it defines as price stability. With inflationary pressures easing and Swiss consumer prices declining by 0.1% in the previous month—the lowest in four years—the central bank saw room for further easing.

Although the SNB last used negative interest rates from late 2014 until 2022, the move was met with resistance from banks, savers, and pension funds. Schlegel acknowledged these concerns, stating, “It’s very clear that negative rates would come with challenges and side effects—for example, for savers, pension funds, and the real estate market. We would not take this decision lightly.”

Following the announcement, the Swiss franc briefly strengthened but later settled, trading flat against the U.S. dollar at 0.8191 francs.

Thursday’s move marked the SNB’s sixth consecutive rate cut. The bank also lowered its inflation forecasts for 2025 through 2027, reinforcing market expectations of additional cuts.

In its updated economic outlook, the SNB projected weaker global growth and rising U.S. inflation in the coming quarters, while expecting inflationary pressures in Europe to ease. However, it warned of ongoing global uncertainty, citing the risk of further trade restrictions that could dampen economic activity worldwide.

Swiss Franc in Focus

The SNB’s decision came on a day packed with central bank announcements. Norway’s central bank surprised investors with its first rate cut in five years, while the Bank of England held its interest rate steady, signaling a more cautious stance.

Meanwhile, the U.S. Federal Reserve opted to keep rates unchanged on Wednesday but indicated that rate cuts remain on the table later this year. Earlier this month, the European Central Bank also trimmed its rate by 25 basis points, signaling the start of a gradual easing cycle.

Market analysts are increasingly betting on further easing by the SNB. Charlotte de Montpellier, senior economist at ING Bank, noted, “Unless the situation changes drastically between now and September, today’s decision paves the way for a further rate cut in September and a return to negative interest rates.”

Analysts at Capital Economics also see another rate cut as likely, citing persistent deflation as a factor that may prompt the SNB to act again.