2LT International News

ZURICH, Switzerland: The Swiss National Bank (SNB) lowered its key interest rate to zero percent on June 19 to respond to falling inflation, the strong Swiss franc, and uncertainty caused by unpredictable U.S. trade policies.

The SNB reduced the rate by 0.25 percentage points, down from 0.25 percent, as expected by financial markets and a Reuters survey. This marks the sixth time in a row the central bank has cut rates since it began easing in March 2024.

Switzerland is now close to returning to negative interest rates—a policy it had from 2014 to 2022 that was unpopular with banks, savers, and insurers.

“In recent months, inflation has fallen,” the SNB said. “Today’s rate cut is meant to support the economy and keep inflation under control.”

Inflation in Switzerland turned negative in May for the first time in four years, dropping below the SNB’s target of zero to two percent. The Swiss franc briefly strengthened after the rate cut was announced, but later returned to its previous level, trading at 0.8191 francs per U.S. dollar.

The SNB expects the global economy to slow down in the coming months. It also predicts U.S. inflation to rise, while inflation in Europe is likely to keep falling. However, the bank noted that the global outlook remains uncertain. If trade tensions worsen, the global economy could slow down further. On the other hand, stronger government spending in some countries might support growth.

Switzerland’s decision came on a busy day for central banks. Norway surprised markets with its first rate cut in five years, and the Bank of England was set to announce its rate decision later in the day. Earlier this month, the European Central Bank also cut its rate, and this week, the U.S. Federal Reserve held rates steady but said it might lower them later this year.

UBS economist Alessandro Bee explained that the SNB’s move was partly to stop the Swiss franc from becoming too strong. The recent U.S. tariffs announced in April have created economic pressure, and a stronger franc hurts Swiss exporters and could push inflation down even more.

EFG economist GianLuigi Mandruzzato said the effects of the franc’s strength will become clearer in the months ahead. He expects the SNB to pause further rate cuts unless the Swiss economy takes a sharp turn for the worse due to U.S. trade policies.

Mandruzzato also noted that the SNB’s statement shows great concern about global developments. The bank is keeping all options open, including returning to negative interest rates and entering foreign exchange markets if needed.

Swiss bond yields also suggest markets expect interest rates to fall below zero again. So far in 2025, the franc has risen about 11 percent against the dollar, which has made imports cheaper and helped lower inflation.

The SNB says it may intervene in the currency markets if necessary to keep inflation on track. However, the U.S. recently added Switzerland to a list of countries being monitored for possibly manipulating currency and trade.

“The SNB’s main concern may not be avoiding the impression of being a currency manipulator – still, it is politically wise not to appear too trigger-happy to go negative with the policy rate,” said Karsten Junius, chief economist at J Safra Sarasin.