Pulled in opposite directions, the Swiss National Bank is likely to keep rates steady

The Swiss national bank (SNB) meets this week at a time of highly uncertain prospects. Over the past 12 months, inflation has been very low in Switzerland (at most 0.3% year-on-year, with even a dip into negative territory last May), due to the strength of the Swiss franc, which has pushed imported price inflation into negative territory for more than two years, but also to energy prices, which have kept energy inflation deeply negative (in February, energy inflation stood at ‑4.4% year-on-year). In such a context, the SNB has kept its policy rate at 0% since June 2025, while at the same time being very clear that the bar was high for moving its rate back into negative territory. Given the negative side effects, the SNB prefers to avoid this. At its last meeting in December, the SNB’s inflation forecasts pointed to a slight rise in inflation over 2026 and 2027, reaching an average of 0.2% in 2026, 0.6% in 2027 and 0.8% by summer 2028, which allowed it to justify a monetary status quo. The market and the consensus among economists were therefore expecting unchanged rates in 2026, with downside risks.

The war in the Middle East since the end of February has disrupted the situation. On the one hand, due to the increase in risk on global markets, it has led to an appreciation of the Swiss franc, which reached a historic high against the euro at 0.90. As such, this is bad news for the SNB, as it risks pushing imported prices down even further and therefore lowering inflation in Switzerland. In addition, it weighs on the competitiveness of Swiss exporting companies.

But the war in the Middle East also entails an upside risk to inflation, given the rise in energy prices on global markets. The two effects work in opposite directions. As a result, the SNB finds itself facing a highly uncertain situation. We therefore expect a monetary status quo at Thursday’s meeting. The SNB will probably prefer to wait and see which of the two effects will have the greater impact on inflation prospects before acting in one direction or the other.

More generally, we believe that an energy shock is structurally a less acute problem for inflation in Switzerland than in the euro area, for two main reasons. On the one hand, the direct weight of energy in the Swiss consumer price index (CPI) is relatively limited (5% versus 9% on average in the euro area), which mechanically reduces the impact of an increase in energy prices on headline inflation.

On the other hand – and above all – the appreciation of the Swiss franc plays a central buffering role. First on energy prices themselves: the rise in Brent prices in dollars or gas prices in euros is less pronounced once converted into Swiss francs. But also because, as a small open economy, Switzerland is very sensitive to the imported price channel: imports represent 22% of the consumer price basket, so that a strong franc exerts significant downward pressure on imported inflation, well beyond energy prices. This mechanism was particularly visible during the 2022 energy shock, when the appreciation of the Swiss franc offset part of the increase in global inflationary pressures. As a result, headline inflation in Switzerland did not rise above 3.4% in 2022, whereas headline inflation peaked at 10.6% in the euro area and 9% in the United States.

It should also be borne in mind that the situation in 2022 is not the same as in 2026. In January 2022, just before Russia’s invasion of Ukraine, which triggered the energy shock, Swiss inflation stood at 1.7%. This is a much higher starting point than today, with inflation at 0.1%. At the time, the SNB’s policy rate was at -0.5%, a much more accommodative level than now, which prompted the SNB to start raising rates in June 2022 and to sell foreign currencies in order to strengthen the Swiss franc in the second half of 2022.

Overall, we therefore believe that it is unlikely that the SNB will be forced to raise its policy rate over the next 12 months. In our view, the two rate hikes expected by financial markets do not consider Switzerland’s specificities in the face of an energy shock.

Beyond the issue of interest rates, attention is likely to focus on Thursday on SNB interventions in the foreign exchange market, a monetary policy tool that has not been used much in recent months before March, but to which the SNB tends to resort when the international environment deteriorates and leads to a rapid appreciation of the Swiss franc. On 2 March, just after the start of the conflict, the SNB communicated in a rather rare manner: “In view of international developments, our willingness to intervene in the foreign exchange market has increased. We are prepared to intervene in the foreign exchange market to counter a rapid and excessive appreciation of the Swiss franc, which jeopardises price stability in Switzerland.”

This seems to indicate that the SNB has indeed intervened in foreign exchange markets in recent weeks. It is likely that the SNB will once again emphasise its willingness to intervene on Thursday. It will continue to closely monitor the real effective exchange rate. The inflation differential between Switzerland and its trading partners – which is likely to widen over the coming months – means that real effective appreciation in Switzerland should remain more limited than nominal appreciation. This could reduce the need for intervention to curb the strengthening of the Swiss franc in the weeks ahead, except in the event of a sudden further spike.

Charlotte de Montpellier

When the SNB embarks on intervention to slow franc appreciation, its monetary policy statement would typically characterise the franc as ‘highly valued’ or ‘very highly valued’. The inclusion or omission of this reference in Thursday’s statement can probably help set the tone for EUR/CHF. Inclusion would suggest the SNB is more worried by growth and a weaker external environment for its local exporters. This would be EUR/CHF supportive. Its omission would undermine the SNB’s position that it would be increasingly prepared to intervene and would probably weigh on EUR/CHF.

For reference, the SNB bought around CHF5bn of FX in the first quarter of 2022 when it was trying to support EUR/CHF. But it sold CHF-25-40bn of FX per quarter through late 2022 and the entirety of 2023 as it used a strong Swiss franc to fight inflation.

In addition, the market may also be interested in whether the SNB has any further tweaks to its remuneration of sight deposits. Excess sight deposits are charged at 0.25% – i.e. 25bp less than the policy rate. In theory, that could be moved to a 50bp charge, although local banks do not seem to be preparing for such a change. And having recently reduced the exemption factor to 15x minimum required reserves from 22x at the start of last year, it may be too soon to expect another adjustment here.

However it chooses to adjust its policy statement, the SNB has its work cut out in trying to contain EUR/CHF downside. The franc was sought last year as a hedge on dollar debasement and is now in demand because of an energy supply shock. We tentatively look for some stability and modest appreciation in EUR/CHF later this year should investors return to the eurozone growth story. But at present, pressure remains for the market to overwhelm presumed SNB buying of EUR/CHF below 0.90.

Chris Turner