Swiss Franc Strengthens Following Interest Rate Cut

Franc Gains Ground After SNB Decision

The Swiss franc firmed slightly in the wake of the latest interest rate decision by the Swiss National Bank (SNB). The US dollar fell to 0.8186 francs, compared to 0.8211 prior to the announcement. The euro also declined, slipping to 0.9386 francs from around 0.9414. As expected, the SNB further loosened its monetary policy, lowering its benchmark interest rate by 25 basis points to 0.00 per cent.

Analysts attribute the franc’s appreciation to the fact that some market participants had been anticipating a return to negative interest rates. According to Josie Anderson, an economist at Nomura, there had been a roughly 22 per cent probability priced in by markets for a cut to minus 0.25 per cent.

SNB Cuts Base Rate to Zero

The Swiss National Bank has once again eased its monetary stance, lowering the key interest rate to zero. This marks the sixth consecutive rate cut by the central bank. In its statement, the SNB reaffirmed its readiness to intervene in the foreign exchange market if necessary.

Experts had widely predicted the move. “With today’s easing of monetary policy, the SNB is counteracting the reduced inflationary pressure,” the central bank noted. It added that it would continue to monitor the situation closely and adjust monetary policy if needed, to ensure that inflation remains within its target range over the medium term.

Inflation Turns Negative for the First Time Since 2021

The recent monetary easing has sparked speculation that Switzerland could soon return to negative interest rates. The SNB had previously adopted sub-zero rates from 2014 until 2022 — a period that drew criticism, particularly from savers. Beginning in 2024, the SNB resumed a gradual process of lowering rates.

In May, consumer prices fell by 0.1 per cent year-on-year, mainly due to cheaper travel and lower oil product prices. This marked the first instance of negative inflation in Switzerland since March 2021. The SNB aims to maintain inflation within a range of 0 to 2 per cent to support overall price stability.

Outlook Remains Cautious

While the current rate cut was widely anticipated, the SNB’s signals suggest a cautious approach going forward. The central bank remains focused on avoiding long-term deflationary trends, while retaining flexibility to respond to shifting economic conditions. Whether the return of negative inflation is a temporary blip or a trend that demands further action remains to be seen.