SNB Set to Cut to Zero But Shirk From Negative Rate for Now

(Bloomberg) — The Swiss National Bank will probably lower its interest rate to zero this week and stay there for some time, a Bloomberg survey of economists showed, just as new government forecasts pointed to persistently slow inflation.

Policymakers will reduce borrowing costs by a quarter point on Thursday, almost 80% of their predictions show. That would return the benchmark to the level it last crossed in September 2022, when seven years of negative rates ended. This would be the first time ever it has landed on zero.

Only three of the 22 forecasters — Pantheon Macroeconomics, Capital Economics and Swiss Life Asset management — reckon officials will go below that level this week, deploying a half-point cut to take the benchmark to -0.25%. While another six including Goldman Sachs, Nomura and Barclays see a move there in September, the majority in the poll reckon the easing cycle will conclude in June.

Most Swiss analysts including EFG Bank’s Chief Economist Stefan Gerlach expect a standard-size step in line with a public stance of SNB officials to avoid over-reactions.

“Fifty basis points is a bit of a London trading floor kind of view, far away from Switzerland and from how things stand here,” Gerlach said in an interview, adding that he “really can’t see” such a move.

New government forecasts published on Monday show inflation will come in at just 0.1% this year — much lower than the 0.3% expected by economists in the survey and the 0.4% in the SNB’s March projection. 

The State Secretariat for Economic Affairs — which is responsible for drawing up official predictions — said Monday that price growth will accelerate to 0.5% next year, even slower than the 0.6% seen by economists and 0.8% by the SNB.

Very weak inflation is a key motivation for the central bank’s likely sixth consecutive reduction: Last month the rate of price growth turned negative for the first time since early 2021.

Policymakers are acting to stem flows into the franc, which has gained more than 8% against the dollar after US President Donald Trump’s “Liberation Day” announcement of tariffs in early April. The currency also appreciated against the euro since then, and its strength depresses import costs and consumer prices.  

But given that weak inflation dynamics are because of factors outside the SNB’s sphere of influence, there are also economists who say the central bank should wait out the situation. Alexandra Janssen, chief executive officer of Ecofin Portfolio Solutions, expects a 25 basis-point cut, but warns that this might not be the best move.

“Interest rates are already extremely low — and we have slow inflation because of the exchange rate and the oil price. That’s not a situation against which the SNB should take action,” she said. “If we had the risk of a true domestic deflation, we could talk about rate cuts. But we don’t.”

On the contentious topic of currency interventions, SNB chief Martin Schlegel said in mid-May that officials have had productive talks with Washington. Regardless, the US Treasury this month added Switzerland to a list of economies it is closely monitoring over exchange-rate policies. 

While the Swiss government abandoned its economic forecasts after Trump’s tariff announcement, its new growth numbers presented Monday aren’t far off from its old estimates. It now sees gross domestic product expanding 1.3% this year — just 0.1 percentage points weaker than before — and 1.2% in 2026. 

Still, it warned that “downside risks to the economy currently outweigh upside potential,” adding that “uncertainty surrounding international economic and trade policy and their macroeconomic consequences remains high.”

Washington and Bern are in negotiations to head off threatened tariffs of as much as 31%. According to the Switzerland’s top trade official, Helene Budliger, detailed conversation are ongoing on what a “UK-style deal” could look like. There are “relatively concrete ideas” on the table, she told Bloomberg Television earlier this month. 

Economy Minister Guy Parmelin has said that he hopes to clinch an agreement by early July. Switzerland’s government has signed off on a negotiation mandate that sketches a compromise around cutting tariffs for agricultural goods that the country doesn’t produce in a significant manner.

(Updates with economists starting in fourth paragraph.)

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