Swiss central bank keeps policy rate at zero

The SNB is holding the world’s lowest central-bank rate at 0%. The Swiss National Bank left its policy rate unchanged on Thursday, a decision economists had widely expected even as the European Central Bank and the US Federal Reserve have recently raised borrowing costs.

The pause keeps Switzerland’s monetary settings unusually easy while the bank watches a modest rise in prices. Swiss inflation reached 0.8% in August, up from 0.4% in July, according to the SNB. Energy costs, particularly oil products, accounted for much of the increase. Inflation remains inside the SNB’s price-stability range of zero to 2%.

SNB Chairman Martin Schlegel said the current policy was “appropriate to keep inflation within the range consistent with price stability and supports economic development”. The bank raised its short-term inflation forecasts, but described the increase in medium-term pressure as limited.

For households, companies and investors, the decision preserves the current financial landscape: cheap borrowing, limited returns on cash and continued attention to the franc. The SNB has held the rate at zero since June 2025, after years of negative rates designed partly to prevent excessive appreciation of Switzerland’s currency.

Inflation is rising, but the SNB sees no broad domestic price surge. The August reading of 0.8% remains low by European standards and sits comfortably within the central bank’s definition of price stability. The recent acceleration has been concentrated largely in oil products, a factor monetary policy cannot directly remove.

The SNB expects inflation to reach 1.2% in the fourth quarter, driven mainly by higher oil prices, before easing during 2027. Its updated annual forecasts put inflation at 0.7% in 2026, 0.8% in 2027 and 0.8% in 2028. The bank’s longer-range projection allows inflation to reach as much as 0.9% in 2029.

That outlook gives policymakers room to wait. A rate increase would make mortgages, corporate credit and investment more expensive, while doing little to lower prices at the petrol pump or reduce the cost of imported energy. The decision also reflects Switzerland’s subdued domestic demand and relatively contained wage and price pressures.

Schlegel cautioned that the outlook remains exposed to energy markets and international developments. A sharper oil shock could push inflation higher, while weaker global growth could restrain Swiss exports. The SNB therefore kept its options open rather than committing to a fixed path.

Swiss GDP growth has improved enough for the SNB to raise its forecast to 1.5% to 2% this year. The upgrade follows a 1.5% jump in second-quarter GDP, driven mainly by exports from the pharmaceutical sector. The bank expects growth of around 1.5% in 2027.

The performance gives policymakers a stronger reason to leave rates unchanged. Export demand, the current monetary stance and the franc’s recent decline should provide support in the coming quarters. Switzerland’s pharmaceutical companies, precision manufacturers and other globally exposed businesses benefit when foreign demand holds up and the franc does not strengthen sharply against the euro and other major currencies.

The outlook remains dependent on events outside Switzerland. Trade policy, weaker global activity and renewed geopolitical tensions could reduce orders for Swiss exporters. A deterioration in the Middle East could also affect energy prices and international confidence.

The SNB’s position reflects the balance in the data. Growth is healthier than previously forecast, but it is not strong enough to demand aggressive tightening. The bank wants to preserve economic momentum while watching whether higher energy costs spread into broader domestic inflation. That leaves the next move dependent on incoming data rather than on the actions of Frankfurt or Washington.

The franc has weakened by around 3% since June, easing pressure on exporters and changing the SNB’s currency calculus. The decline follows a widening in interest-rate differentials between Switzerland and larger currency areas. The franc remains a major safe-haven asset, attracting investors during geopolitical stress and periods of economic uncertainty.

A weaker franc can help Swiss exporters by making their goods more competitive abroad. It can also raise the domestic price of imported energy, food and manufactured products. That trade-off matters as oil prices push inflation higher. The SNB said it remains willing to intervene in foreign-exchange markets if necessary, although its latest language suggests less urgency than in earlier assessments.

The currency’s safe-haven role has shaped Swiss monetary policy for years. Negative rates were introduced partly to discourage excessive demand for the franc, which can squeeze exporters and weaken economic activity. The zero-rate policy continues that effort with fewer penalties for savers than negative rates created, though cash and deposit returns remain limited.

For the wider economy, the franc’s next move may matter as much as the policy rate itself. A renewed surge would restrain imported inflation but hurt exporters. Further depreciation would support industry while increasing the risk that energy costs feed into consumer prices.

Zero rates keep financing costs low, but they narrow the reward for holding cash. Swiss mortgage borrowers benefit from a policy environment that supports lower short-term funding costs, although actual mortgage rates also depend on bank margins, market expectations and the type of loan. A future SNB increase would feed first into floating and money-market-linked mortgages, while fixed-rate products would respond through bond markets and expectations.

Savers face the opposite effect. Deposits and high-quality cash investments offer limited returns when the policy rate is zero. Pension funds and insurers also operate in a low-yield environment, which can make it harder to generate returns without taking additional investment risk.

The public sector benefits directly from cheap financing. Swiss government gross interest payments amounted to just 0.25% of GDP in 2025, the lowest figure in the cited comparison of 35 economies. Switzerland’s low public debt adds to that advantage, giving the Confederation and the cantons more room to manage budgets when borrowing costs rise elsewhere.

The policy may change if inflation broadens, the franc weakens sharply or external price pressures persist. EFG International analyst GianLuigi Madruzzato said a rate increase at a December or March meeting had become more plausible. For Swiss households, the immediate message is stability, with the next mortgage and savings decisions still tied to inflation, currency markets and the SNB’s incoming data.