On June 19, 2025, the Swiss National Bank (SNB) cut its policy rate by 25 basis points to zero, marking the first time Switzerland has held its interest rate at 0%—after exiting negative territory in 2022. The move aims to counter deflation and restrain the strong Swiss franc, which surged roughly 10–11% against the US dollar this year.
🔑 Key Highlights
- Inflation Turns Negative
Swiss inflation dropped to −0.1% in May, its first negative reading in four years, driven by declining tourism and energy prices. - Taming Franc Strength
A stronger franc, seen as a safe-haven asset during global trade tensions, has hurt Swiss exports and heightened deflation concerns. The SNB chose easing via policy cuts rather than outright currency intervention. - Sixth Consecutive Cut Since 2024
This drop continues a cut cycle that began in March 2024. The SNB opts to tread cautiously, stopping just shy of negative rates—balancing support with savers’ and pensioners’ interests. - Financial Sector Under Pressure
Swiss banks—already coping with narrow deposit margins—now face heightened profitability strain under a zero-rate environment. UBS has warned that 0% is one of the most challenging rate scenarios. - Clear Path to Negative Rates if Needed
SNB Chair Martin Schlegel confirmed that moving back into negative rates remains a possibility if economic conditions worsen. Markets still see roughly a two-thirds chance of a rate cut into the negatives by March 2026.
🧭 Why It Matters
- Deflation risk: Prolonged zero or negative rates can harm savers and encourage excessive borrowing, while also potentially trapping the economy in low-growth territory—a classic liquidity trap scenario.
- Export and FX sensitivity: Weak domestic demand and a strong franc could hinder Switzerland’s export-heavy economy. The SNB is keeping unconventional tools like FX intervention and negative rates available.
- Global policy tensions: While the Fed maintains rates, and Norway also unexpectedly cut, Switzerland’s shift underscores divergent monetary paths amid uneven inflation trends across Europe and the US.
✅ Final Take
Switzerland’s shift to a zero interest-rate policy (ZIRP) marks a historic pivot aimed at stemming deflation and reigning in the Swiss franc. Though necessary, it also brings headwinds for banks and savers. With economic uncertainty and a cautious tone from the SNB, future steps—including possible negative rates—remain on the table.
