Key Takeaways
- The Swiss National Bank held its policy rate steady at 0%, the lowest among major central banks.
- The SNB raised its inflation forecast for 2026 but lowered its outlook for 2027.
- Swiss policymakers are more likely to intervene in foreign exchange markets than to cut interest rates into negative territory.
Switzerland’s central bank, the first in Europe to start cutting rates in early 2024, kept interest rates at zero on Thursday as the country battles an appreciation of the Swiss franc and rising energy prices. This is in line with market expectations that the Swiss National Bank would not return to negative rates, preferring currency market interventions instead.
“Given the conflict in the Middle East, the SNB’s willingness to intervene in the foreign exchange market has increased,” according to the press release. “The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland.”
The SNB revised up its short-term inflation outlook on the back of higher energy prices, but lowered its medium-term outlook as the Swiss franc continues to appreciate against its peers, most notably the euro.
This comes a day after the US Federal Reserve decided to keep rates unchanged at the current target range of 3.50%-3.75%. Futures markets now imply only one rate cut in 2026, compared with two cuts before the war. On Wednesday, the Bank of Canada also decided to hold interest rates steady.
The European Central Bank will also announce its rate decision on Thursday, at 2:15 pm CET, and the Bank of England at 1 pm.
Inflation Expected to Rise in the Short-Term
Switzerland’s inflation remained low at 0.1% year over year in February for the third consecutive month, while economic growth is moderate. The SNB considers inflation between 0% and 2% consistent with price stability.
The SNB now forecasts higher inflation in the coming quarters due to rising energy prices, but revised down its medium term inflation forecasts as the Swiss franc continues to strengthen amid safe-haven demand. “The forecast is within the range of price stability over the entire forecast horizon,” the press statement said. This puts average annual inflation guidance at:
- 0.5% for 2026 (up from 0.3% in the December forecast)
- 0.5% for 2027 (down from 0.6%)
- and 0.6% for 2028 (new forecast)
Economic Outlook Uncertain Due to Iran War
The economic outlook for Switzerland for the coming months is uncertain, the SNB said. “In the shorter term, growth could be rather subdued, with a certain upturn to be expected in the medium term. The SNB currently expects growth of around 1% for 2026 as a whole, followed by around 1.5% in 2027.”
Swiss GDP grew again in the fourth quarter, having contracted in the prior quarter.
“The main risk to the economic outlook for Switzerland is the development in the global economy,” according to the SNB.
SNB Not Expected to Cut Rates Into Negative Territory
“The SNB’s president has repeatedly emphasized that foreign exchange interventions remain the bank’s preferred first line of defense before it resorts to rate cuts,” said Martina Honegger-Romahn, lead portfolio manager for fixed income at Allianz Global Investors, in a written statement.
“Unless the Swiss franc appreciates significantly or the domestic economic outlook deteriorates sharply, we expect the SNB to rely primarily on foreign exchange interventions in the near term while keeping the policy rate unchanged.”
