Switzerland’s central bank, the first in Europe to start cutting rates in early 2024, marked a return to zero interest rates on Thursday as the country battles deflation.
The SNB sets rates once a quarter. While a further cut wasn’t expected when it last lowered its rate to 0.25%, global volatility spurred by US President Donald Trump’s trade wars since triggered large capital flows into safe-haven assets such as the Swiss franc, buoying the currency to the detriment of Switzerland’s economic interests.
In May, Swiss consumer prices fell 0.1% compared to a year earlier. The need to stave off deflation has since forced SNB policy in a more dovish direction.
“When you pull back the curtain, the decision makes some sense,” Morningstar’s chief European markets strategist Michael Field says. “Inflation fell to zero in April, below the central bank’s target, economic growth is relatively subdued and the macroeconomic environment is uncertain.”
“Cutting rates to zero has its dangers of course, it leaves the bank with less wiggle room if the economic environment worsens,” Field adds. “But given where we are in the cycle and the economic conditions we’re facing, its likely the prudent action to take.”
What the Strong Swiss Franc Means for Investors
For investors from the eurozone and the US, the franc’s strength underscores the cost of safety because it can erode returns for investors who bought assets in currencies other than the franc. It can also compress the profit margins of Swiss companies going forward, with potential negative impacts on their stocks.
Still, Swiss bonds may offer diversification opportunities for fixed income investors looking for safety and capital preservation in an increasingly volatile global environment.
When Is The Next SNB Rate Decision?
Only two rate decisions remain in 2025.
• Third-quarter rate decision: Sept. 25, 2025
• Fourth-quarter rate decision: Dec. 11, 2025
