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Swiss national bank delivers a dovish hold

Investment Insights • Macro

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Swiss national bank delivers a dovish hold

At its 18 June meeting, the Swiss National Bank (SNB) left interest rates 0%. In this Macro Flash Note, Senior Economist and Strategist GianLuigi Mandruzzato looks at the drivers of the decision and the key factors for future monetary policy in Switzerland.

GianLuigi Mandruzzato

GianLuigi Mandruzzato

The SNB's decision to keep rates at 0%, widely expected by the markets, was accompanied by relatively dovish language, highlighting the following points:

  • Swiss inflation increased less than in other countries, primarily due to energy prices;
  • inflation is expected to remain well within the SNB's 0-2% target range over the entire forecast horizon, albeit with a tendency to increase moderately over time (see Chart 1);
  • there are downside risks to inflation stemming from the appreciation of the Swiss franc; and
  • there are downside risks to global and Swiss growth due to geopolitical tensions and uncertainty over US trade policy.

As is typical for the SNB, these comments are intended to explain the decision rather than provide guidance on the central bank's future actions. The decision to leave rates unchanged is appropriate given the current state of the Swiss economy and the updated inflation forecasts.

However, it is unclear what scenario for energy prices the SNB has considered. If the new inflation forecasts do not take into account the recent sharp decline in oil and natural gas prices, inflation could be lower than expected, increasing the likelihood that interest rates will remain unchanged for some time to come.

The key factor for future rate decisions will be the difference between future inflation and the SNB's forecasts. If actual inflation exceeds forecasts, perhaps in conjunction with an improvement in growth prospects (see Chart 2), the SNB could consider a less expansionary monetary policy.

To conclude, the SNB decision to leave the policy rate at 0% is appropriate to the current circumstances. The central bank, in line with its habit, did not give much forward guidance and future policy decisions will be data dependent. 

Markets expect the central bank to raise the policy rate no sooner than the second half of 2027, but recent history shows that the SNB often surprises by acting earlier than expected.

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