Trade under pressure, rates unchanged – the Swiss economy at a crossroads

Swiss National Bank decided to keep the interest rate at 0%, thus ending a series of six consecutive cuts that began in March 2024. The decision was in line with the expectations of almost all economists and means adopting a "wait-and-see" strategy. The Bank clearly stressed that it does not want to return to the policy of negative interest rates, which it considers harmful to the stability of the financial system..

The latest inflation reading in Switzerland was 0,2%, slightly above the bank's forecast but still within the 0-2% price stability range. Forecasts for the coming years remain low: 0,2% in 2025, 0,5% in 2026, and 0,7% in 2027. The SNB notes that inflationary pressures have not changed significantly since the previous quarter. The Swiss franc remains at very high levels against major currencies.The EUR/CHF exchange rate is 0.9341, stable since June, while the Swiss franc has strengthened against the dollar to 0.7956 – its strongest level in a decade. Since the beginning of the year, the Swiss franc has gained 12% against the dollar and 1% against the euro, mainly due to growing demand for safe-haven assets.

The Swiss economy at a crossroads

However, the Swiss economy faces a serious challenge in the form of tariffs imposed by the US – the highest among all developed countries. The KOF Institute has lowered its GDP growth forecasts for 2026, pointing to trade barriers as the main source of risk.Export sectors, including the machinery and watchmaking industries, must cope with the consequences of the new burdens on their own.

Most economists believe that the current cycle of monetary policy easing has ended and the interest rate will remain at 0% at least until the end of 2026. However, around 25% of analysts indicate that if US tariffs severely hit the economy, the SNB may consider returning to negative rates. interest rates – for example, to -0,5% in the event of a major shock. Other experts, however, emphasize that the next step could be a rate hike if inflation begins to deviate more from current forecasts.

The SNB's decision shows that the bank is trying to balance the risk of a recession caused by trade barriers with the effects of a strong franc, which limits price pressures.Currently, the baseline scenario remains price stability and interest rates remaining unchanged, although a return to negative rates is still considered a fallback option.

Source: Krzysztof Kamiński, OANDA TMS Brokers