Swiss National Bank cuts rates to zero with inflation negative

The Swiss National Bank (SNB) cut its interest rate to zero on Thursday in response to falling inflation, appreciation pressure on the Swiss franc and economic uncertainty caused by the US administration’s unpredictable trade policy.

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The SNB reduced its policy rate by 25 basis points from 0.25 per cent, as expected by markets and a Reuters poll.

It was the central bank's sixth rate cut in succession after it started reducing borrowing costs in March 2024.

The SNB is now on the brink of returning to negative interest rates, a policy it maintained from 2014 to 2022, but which was unpopular with banks, savers and insurance companies.

“Inflationary pressure has decreased compared to the previous quarter.

With today's easing of monetary policy, the SNB is countering the lower inflationary pressure,” the central bank said in a statement.

The rate cut came after Swiss annual inflation in May turned negative for the first time in four years, moving outside of the SNB’s O-2 per cent target range.

The Swiss franc briefly strengthened after the decision, but retreated to trade steady on the day against the dollar at 0.8191 francs.

SNB Chairman Martin Schlegel said low inflation and weak price pressures had helped spur the decision to trim rates and that the bank would decide its next steps in September.

“We would not take the decision to go negative lightly. We are well aware negative interest rates are a challenge for many actors in the economy, but also for savers, for pension funds, and so on,” he said, mentioning higher property prices as one of the possible side effects.