Zero interest rates return in Europe

The Swiss National Bank lowered rates to zero after consumer prices fell last month. Other European central banks are grappling with uncertainty caused by US President Donald Trump's tariffs, writes Eshe Nelson from London

- Eshe Nelson

Officials in the United States are grappling with the risk that inflation could stay uncomfortably high, in part because of President Donald Trump's tariffs. But in Europe, they worry that inflation could be too low.

On Thursday, Switzerland's central bank lowered interest rates to zero, its sixth consecutive cut, after consumer prices fell 0.1% in May from a year earlier. Policymakers said the step was necessary to counter weak inflationary pressures, which can put a damper on economic growth.

The rate cut returns the region to the precipice of the unusual situation it was in for many years before the pandemic, when many central banks set rates at or below zero. The region was struggling with low inflation and sluggish growth stemming from a debt crisis, and rates were eventually raised significantly above zero to counter the postpandemic surge in inflation.

Price growth has cooled considerably in recent months, as the economic outlook has deteriorated in the face of Trump's trade war.

Since April, when Trump raised tariffs on America’s biggest trading partners, the US Federal Reserve has taken a cautious approach to interest rates. After a handful of cuts last year, Fed policymakers have held rates steady this year as they wait to see the impact of tariffs as well as the administration’s overall tax and spending policies. This has angered Trump, who regularly cites rate cuts in Europe when criticising the Fed for not lowering borrowing costs.