SNB Shifted Stance on Rate Toward Neither Cutting Nor Hiking

(Bloomberg) — The Swiss National Bank’s decision last month to keep interest rates steady was a two-way call neither to cut them nor to raise them in what appears to be a shift in bias.

In contrast to the September deliberations, when officials opted not to ease further, the Dec. 11 meeting in Bern focused on either potential direction for borrowing costs, according to a summary of the discussion released on Thursday.

“The Governing Board found that there was currently no need for monetary policy action,” the SNB said. “Neither a tightening of monetary policy nor a further easing of monetary policy would be appropriate at this juncture.”

The decision was a demonstration of the central bank’s high bar to cutting the key rate below zero, which would threaten to inflict harm on Switzerland’s financial system. Despite having to cut inflation forecasts significantly, officials led by President Martin Schlegel justified a no-change outcome with the prospect that consumer-price growth will tick up.

The release of the summary followed earlier inflation data, which showed the first pickup since July. Consumer prices rose 0.1% in December from a year earlier, up from zero in November and matching the median estimate in a Bloomberg survey of economists. That result means that fourth-quarter inflation was in line with the SNB’s 0.1% new forecast.

The decision by policymakers was based on the view that the decline in price growth seen in October and November was essentially temporary and due to costs at hotels, as well as for rents and clothing.

“The conditional inflation forecast indicates that inflation should rise again in the coming quarters,” the officials said in the summary, echoing the message Schlegel gave at the press conference after the rate decision.

What Bloomberg Economics Says:

“Overall, the minutes confirm the SNB’s hawkish stance, in particular its readiness to tolerate downside risks to inflation. We see the policy rate staying on hold over the coming meetings.”

—Jean Dalbard, economist. For full React, click here

The data on Thursday showed rising costs for rent, education and tobacco products were among the contributors to the year-on-year acceleration. A measure for underlying price growth quickened to 0.5%.

The 2025 inflation rate came in at 0.2%, the statistics office said. That’s the weakest outcome since the first year of the Covid pandemic.

Looking ahead, Switzerland is still likely to face subdued inflation in January, as electricity prices — which were lowered by around 4% throughout the country with the new year — are set to weigh on the gauge. Additionally, companies anticipate wage increases to slow.

Inflation in the surrounding euro area remains much higher than in Switzerland. Based on the European Union’s harmonized measure, the Swiss inflation rate was 0.2% in December.

The strength of the franc is a key consideration for the SNB regarding the outlook for prices, because its gains can depress import costs. Central bank staff briefed policymakers that the currency had “depreciated slightly on a real trade-weighted basis,” since September. In the decision itself, officials didn’t reference the franc beyond standard language that they can intervene in markets if needed.

Economic Outlook

In December, the SNB cut its forecast for consumer price increases to 0.3% for this year, down from 0.5%. In the first quarter, the central bank sees it averaging 0.1%.

Those projections may be threatened by a slowdown in economic activity after data earlier this week showed that manufacturing unexpectedly fell to a seven-month low. That casts doubt on stronger growth estimates after a trade deal with the US.

“The economic outlook for Switzerland has improved somewhat with the announced reduction in US tariffs,” officials said in the summary. “Many economic indicators point to a slight improvement in growth momentum. Although the output gap for the fourth quarter was somewhat more negative than forecast in September, it is likely to close more quickly than previously expected.”

(Updates with BE comment after seventh paragraph.)

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