The Swiss National Bank (SNB) is on the edge of reintroducing negative interest rates, a policy move not seen since 2022, as inflationary pressures wane and global uncertainty intensifies. SNB Chairman Martin Schlegel confirmed on Thursday that the central bank is “on the verge” of negative rate territory, following its decision to cut the policy rate to 0.00%, the lowest level since the pandemic era.
This marks the SNB’s sixth rate cut in just over a year, and signals a growing shift toward ultra-loose monetary policy aimed at staving off deflation and cushioning Switzerland from global economic tremors.
📉 Inflation Turns Negative, Franc Too Strong
The trigger? Deflation. Switzerland’s consumer price index dipped into negative territory in May, raising red flags about slowing domestic demand. Compounding the problem is the Swiss franc, which has surged nearly 11% against the U.S. dollar since early 2024, making imports cheaper but damaging export competitiveness.
“Inflation has fallen below our comfort zone,” Schlegel said in his post-decision remarks. “We are closely monitoring the situation and cannot exclude a move below zero if necessary.”
⚖️ Why Negative Rates Are Back on the Table
Switzerland famously ran negative interest rates for nearly eight years—from 2015 to 2022—to prevent excessive franc appreciation and to fight ultra-low inflation. While those rates were unpopular among savers and some financial institutions, Schlegel defended their effectiveness.
“Nobody likes negative rates, but they work when required,” he said. “The goal is always price stability. If we see further signs of sustained deflation, or stronger safe-haven inflows that distort the exchange rate, we will not hesitate to act.”
The central bank’s mandate is to maintain price stability, typically defined as inflation between 0% and 2%. With May inflation below zero, the SNB has little choice but to consider more aggressive easing—especially amid a weakening eurozone, Middle East geopolitical tensions, and ongoing U.S.-China trade instability.
🏦 What a Return to Negative Rates Could Mean
For Consumers & Savers: Bank deposit rates may fall below zero again, penalizing savers for holding cash in the bank. For Borrowers: Mortgage rates could edge lower, although many are already at historically low levels. For Banks: Profit margins may get squeezed further, particularly for smaller lenders with limited hedging capabilities. For Markets: A move into negative territory may trigger renewed volatility in currency and bond markets, as investors assess the SNB’s commitment to intervention.
📊 Market Reactions
The Swiss franc weakened modestly after the announcement, with traders now pricing in a 50% chance of negative rates by September, according to futures market data. Swiss equities rose slightly, led by exporters hoping for some relief from currency headwinds.
🧭 Looking Ahead
While the SNB has not committed to a timeline for further cuts, analysts believe a return to negative rates is increasingly likely unless inflation rebounds quickly or the franc weakens substantially.
“The SNB is clearly laying the groundwork for more easing,” said Petra Riedel, Chief Economist at AlpineMacro. “They’re not rushing, but the door is wide open.”
As Switzerland stands on the precipice of sub-zero interest rates once again, the SNB’s message is clear: it’s ready to act decisively, even if it means returning to a policy tool once considered a last resort.
