Swiss National Bank holds rate at 0% despite very low inflation

As expected, the SNB decided today to keep its key interest rate at 0%. This decision comes against the backdrop of 0% inflation in Switzerland in November, which is at the lower end of the SNB’s target range of 0-2%.

Swiss inflation remains low, as it has for the past two years, due to falling prices of imported goods driven by the strong Swiss franc. Imported goods account for 23% of the consumer basket, and their prices have fallen by 1.3% year-on-year. Meanwhile, domestic goods and services saw prices rise by (only) 0.4% in November.

Despite low inflation, the SNB has been very clear in recent months that it wants to avoid cutting its interest rate into negative territory, repeatedly stressing the “undesirable effects” of negative rates. It reaffirmed this stance today, emphasising that its inflation forecast is “within the price stability range for the entire forecast horizon.” The SNB expects average inflation of 0.2% in 2025, 0.3% in 2026, 0.6% in 2027 and 0.8% in the third quarter of 2028. Importantly, it has not changed the end point of its forecast, which justifies keeping rates unchanged and suggests they will remain at 0% for many months.

Nevertheless, risks remain that inflation in the coming months will be too low and could fall into negative territory for several months. Indeed, the SNB has revised down its inflation forecasts for the next quarters: 0.1% is expected for Q1 2026, 0.2% for Q2 and 0.3% for Q3 (versus 0.5%, 0.5% and 0.6% expected at the September meeting). With inflation expected to be so low, the risk of slipping into negative territory becomes significant and could quickly materialise if global conditions turn less favourable than anticipated and the Swiss franc appreciates further. In such a context, it would become difficult for the SNB to avoid another rate cut.

Overall, we believe the SNB will keep rates at 0% in the coming months. Even though this is not our base case, the probability that it will be forced to cut rates again is probably higher than markets currently expect. Interestingly, the SNB continues to indicate it is “ready to be active in the foreign exchange market if needed,” but seems very reluctant to use this tool at present. At the press conference, SNB officials stressed that the interest rate is their primary monetary policy tool. Their view on this has evolved significantly in recent years, as FX interventions were widely used during the negative rate period before the Covid pandemic.