Swiss Inflation Slowdown Sparks Fresh Negative Rate Speculation
(Bloomberg) — Switzerland’s inflation unexpectedly slowed to near zero, adding pressure on the central bank to push back against the strength of its currency and boost price growth.
Consumer prices rose 0.1% in October from a year ago, a weak reading that may boost speculation that the Swiss National Bank will be forced to cut interest rates back below zero as soon as next month. A small minority of economists expect a reduction at the next scheduled meeting in December.
The median forecast in a Bloomberg survey was that inflation accelerated to 0.3% in October from 0.2%. None of the respondents had predicted a reading as low as 0.1%. Core inflation, which strips out volatile elements such as energy, also unexpectedly slowed last month, to 0.5% from 0.7%.
One pressing problem is the franc’s haven status, which has propelled the currency to near decade-highs against both the euro and the dollar. That’s reducing inflation by depressing import costs. The currency weakened after the release of the latest inflation number, and was trading at 0.9291 francs per euro as of 10:26 Zurich time.
The data will frustrate SNB President Martin Schlegel and his fellow officials, who have predicted that inflation will pick up at the end of this year and into 2026. They argued at their September meeting that cutting interest rates down to zero earlier this year would drive such acceleration in due course.
What Bloomberg Economics Says…
“Swiss inflation surprised again on the downside, strengthening the case for the Swiss National Bank to cut in December. October’s CPI reading was driven by renewed downside pressures from imported goods despite energy prices bottoming out. This reinforces our view that the SNB will cut by 25 basis points in December to -0.25% if the franc remains strong.”
—Jean Dalbard, economist. For full React, click here
The SNB’s policy options are limited, and risky; They can either do foreign-exchange interventions that bloat the balance sheet and irk the Americans, or the bigger step of a rate cut below zero that could hurt the financial system.
Given the risks, Schlegel has consistently said that the reintroduction of negative borrowing costs has to clear a higher bar than a normal reduction. That has economists questioning whether the move is in the cards just yet.
“We assume that the SNB will want clear indications of a further decline in prices before taking such a step,” said Thomas Gitzel, chief economist at VP Bank in Vaduz. “Even though the price trend is surprising, the October inflation figures do not indicate any urgent need for action.”
Meanwhile, others reckon that the franc’s current levels might be a temporary phenomenon, rather than a persistent problem for the central bank.
“Fundamentals show no reasons for the franc staying exceptionally strong for longer, so it shouldn’t be a reason to lower interest rates,” said Alessandro Bee, an economist at UBS in Zurich. “If the SNB sees the franc’s current strength as a problem, it’s more likely that it will use interventions.”
–With assistance from Joel Rinneby, Kristian Siedenburg and Harumi Ichikura.
©2025 Bloomberg L.P.
