SNB Shows Reluctance to Cut Again After Rate Hits 2 1/2-Year Low

(Bloomberg) — Swiss National Bank officials cut their interest rate to the lowest since September 2022 to deter inflows into the franc, and declared another reduction is less likely for now.

Officials led by President Martin Schlegel trimmed their benchmark by a quarter point to 0.25% on Thursday, in a step anticipated by traders and a large majority of economists. He signaled to reporters in Zurich that the central bank doesn’t anticipate more easing at the current juncture.

“This rate cut has an expansionary impact,” Schlegel said. “In that sense, the probability of additional policy easing is naturally lower.” 

The SNB’s fifth step in the current cycle leaves its rate at the lowest of any managing the world’s 10 most-traded currencies. Analysts largely reckon that this was its final reduction of the cycle. 

The Swiss franc erased gains after the decision, traded slightly lower at 0.9572 versus the euro. Swaps pricing indicates traders expect no more rate cuts by the SNB this year.

The central bank’s activism contrasts with the hesitancy to ease further by global peers such as the US Federal Reserve, which on Wednesday acknowledged a backdrop of high uncertainty. Similarly, Sweden’s Riksbank kept borrowing costs unchanged and said it has finished cutting.

The SNB move, following up on a surprise half-point reduction in December, shores up its foreign-exchange policy in anticipation of volatile times ahead. While the franc has weakened this year, the currency remains a potential haven for investors guarding against instability just as US President Donald Trump ratchets up global trade tensions and war continues to rage in Ukraine.  

“We also remain willing to be active in the foreign exchange market as necessary,” Schlegel said, sticking with the SNB’s standard language, as observed how the backdrop has shifted. “Uncertainty about global economic and inflation developments has increased significantly.”

What Bloomberg Economics Says…

“This decision reflects the increased uncertainty around the inflation outlook amid threats of tariffs and a high level of geopolitical uncertainty, both of which could put upward pressure on the currency. The decision can be seen as insurance against those risks.”

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

The reduction might pre-emptively dissuade inflows, but also uses up precious room for easing before reaching zero, which is now just one conventional quarter-point step away. 

Dropping the rate to that level would force officials into a tough choice between market interventions to repel foreign-exchange speculation or else going negative again, as they did in the period from 2015 until 2022.

While subzero borrowing costs inflict pain on the country’s financial system, selling the franc could potentially drawing the ire of Trump, whose administration branded Switzerland as a currency manipulator when he was last in office. 

Data released this week showed the SNB largely kept out of foreign exchange markets in the final three months of 2024, marking a full year without sizable interventions. While the franc rose against the euro after Trump’s election in November, it erased those gains and has since weakened.

“I can clearly say Switzerland is not a currency manipulator,” Schlegel told Bloomberg Television on Thursday. Past “interventions were necessary to maintain price stability,” he said. “This was not to gain competitive advantage for Switzerland.”

The decision to cut and contain market pressure is intended to stop strength in the currency from lowering import costs too far, hurting inflation. Consumer-price growth has weakened considerably from a peak of 3.5% to reach near zero in February. 

Officials slightly lifted their forecast for 2025 inflation on Thursday. They now expect it to average 0.4% this year, and 0.8% in 2026 and 2027, after it was previously seen at 0.3% in 2025 and 0.8% in 2026. 

The outlook for inflation “is currently very uncertain,” Schlegel said. “The risks are predominantly to the downside.”

Policymakers kept intact their outlook for Switzerland’s economy after the strongest expansion in almost two years last quarter. The SNB still expects growth in a range of 1-1.5% this year.

“This was the last rate cut of the SNB this year,” said Karsten Junius, the chief economist at Bank J Safra Sarasin. “Upward revisions of the inflation profile indicate that no further rate cut is needed.”

–With assistance from Vassilis Karamanis, Brenda Kerubo, Harumi Ichikura, Kristian Siedenburg, Joel Rinneby, Allegra Catelli, Jan-Henrik Förster, Paula Doenecke, Levin Stamm, James Regan and Federica Romaniello.

(Updates with Schlegel on Bloomberg TV in 13th paragraph)

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