Central Bank of Switzerland lowers interest rates to zero in response to economic downturn.
Unleashed: Swiss National Bank Holds Steady, Skirts Negative Rates
The Swiss National Bank (SNB) recently nixed the idea of diving back into the era of negative rates — a policy that, while once effective in curbing the Swiss franc's surge, wasn't precisely popular with pension funds and investors.
The franc's dance is also under the microscope in the United States, with the US Treasury Department labeling Switzerland as a country allegedly manipulating its currency, slapping it on the watchlist earlier this month.
The SNB insists its actions in the foreign exchange market are aimed at ensuring price stability, not excessively boosting the Swiss economy's competitive edge.
The Swiss currency serves as a safe harbor for investors, rocketing against the dollar since US President Donald Trump lit the fuse on his tariff assault in April.
In a statement, the SNB, which has steadfastly denied tampering with the franc, declared its readiness to intervene in the foreign exchange market as necessary.
The SNB attributed its decision to chop rates by a quarter point to easing inflationary pressure, but also warned of a gloomy economic outlook.
"The worldwide economic outlook over the coming quarters has deteriorated due to the escalating trade tensions," the central bank said, adding that uncertainty loomed over Switzerland's economic future.
"External events remain the primary risk," it stated, anticipating a weakening in the global economy in the forthcoming quarters.
Taming Inflation
The SNB reported that Switzerland's GDP growth was robust in the initial quarter of the year, primarily due to exports to the United States being hastily shipped ahead of Trump's tariff maneuvers.
However, when accounting for that exception, growth remained relatively conservative, and is expected to slow again and stay subdued for the rest of the year, the SNB said.
The SNB forecasts GDP growth of 1% to 1.5% for 2025, and for 2026 as well.
It anticipated Swiss unemployment to creep up slightly.
The bank lowered its inflation projection for 2025 from 0.4% to 0.2%, and for 2026 from 0.8% to 0.5%. In May, even the consumer price index slipped into negative territory, registering -0.1%.
Bye-Bye, Negative Rates?
From 2015 to 2022, the SNB's monetary policy relied on a negative interest rate of -0.75%, jacking up the cost of bank and financial institution deposits compared to the sums they had to stash with the central bank.
These seven years left a bitter taste for major savers, who paid dearly in fees, while pension funds were compelled to venture into riskier investments. Negative rates make the Swiss franc less attractive to investors, as returns on investments shrink.
Thursday's decision was deemed unsurprising by experts.
According to Adrian Prettejohn, Europe economist at the London-based research group Capital Economics, the SNB will nudge rates to -0.25% at its September meeting due to forecasted deflation.
"There are significant downside risks to inflation from trade tensions as well as heightened geopolitical uncertainty, which could raise the franc's value even further," he said.
He emphasized that the central bank's stance on currency interventions hints at a reluctance to leverage foreign exchange interventions as its primary tool to loosen monetary policy in the near future.
The Swiss National Bank's (SNB) decision to maintain steady and avoid negative interest rates is a consideration for the financial sector, as these rates can impact the attractiveness of the Swiss franc for investors and influence the investments of pension funds. On the other hand, the central bank's focus on ensuring price stability and taming inflation, as indicated by the lowering of inflation projections and the expected weakening of the global economy, might have repercussions on the overall economy and business activities in Switzerland.
