"If necessary"

Swiss central bank ready to introduce negative interest rates

(Bild: AFP/Fabrice Coffrini)

The Swiss National Bank (SNB) is prepared to introduce negative interest rates again if necessary. "I would like to emphasize that lower interest rates plus negative interest rates are not excluded from our toolbox," explained the new SNB Chairman Martin Schlegel at an event in Zurich on Friday.

"Nobody likes negative interest rates, the SNB does not like negative interest rates, but if it is necessary, we are ready to take the next step," Schlegel said. The SNB could use this instrument if necessary to dampen demand for the franc. The strong franc is hampering exports, which are important for the country's economy.

Schlegel expected the franc to remain in demand as a safe haven for investors in times of political and economic uncertainty. Following Schlegel's comments, the dollar rose against the franc to its highest level in 18 weeks, while the euro turned positive after earlier losses.

Almost eight years of negative interest rates in Switzerland
Switzerland is no stranger to negative interest rates. It used this instrument for almost eight years before returning to positive interest rates in September 2022. In March 2024, it reversed course again and was the first major central bank to initiate a cycle of interest rate cuts.

Since then, the SNB has lowered the key interest rate to one percent and opened the door wide for further monetary easing. The financial markets are currently pricing in a 72% probability of a cut of 25 basis points and a 28% probability of a cut of 50 basis points for the next interest rate decision in December.

Inflation at lowest level in three years
The latest easing was made possible by the fall in inflation, which has been within the target range of zero to two percent for the past 17 months and fell to its lowest level in more than three years in October.

According to Schlegel, interest rates remain the SNB's most important instrument, supported by foreign exchange market interventions when necessary. The central banker, who took over as head of the central bank in October, indicated that he would not be deterred from selling or buying foreign currency in the future by the possibility of being labeled a currency manipulator by the US. "Our mandate is clear and focused on Switzerland," he said, referring to the SNB's inflation target range.