Swiss central bank cuts interest rates to zero percent

This photograph shows the engraved facade of the Swiss National Bank (SNB BNS) in Switzerland's capital Bern, on September 23, 2024. [AFP]

The Swiss National Bank cut interest rates by a quarter point to zero percent on Thursday, refraining from returning to negative rates despite its gloomy outlook for the global economy.

The move is aimed at taming the Swiss franc, a safe haven that has soared against the dollar since President Donald Trump launched his tariff onslaught in April.

It also comes as consumer price increases have eased in Switzerland.

"Inflationary pressure has decreased compared to the previous quarter. With today's easing of monetary policy, the SNB is countering the lower inflationary pressure," the central bank said in a statement.

"The SNB will continue to monitor the situation closely and adjust its monetary policy if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term."

The central bank said Swiss gross domestic product growth was strong in the first quarter of the year -- largely due to exports to the United States being brought forward ahead of Trump's tariff blitz.

Stripping out that factor, growth was more moderate, and is likely to slow again and remain subdued for the rest of the year, the SNB said.

The SNB expects GDP growth of one percent to 1.5 percent for 2025, and for 2026 too.

It said unemployment was likely to continue to rise slightly.

"The global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions," the bank said.

"The economic outlook for Switzerland remains uncertain. Developments abroad continue to represent the main risk."

Thursday's decision was being closely watched by savers, pension funds, and real estate market players.

Some economists wondered whether the SNB would drop rates to zero percent or return to the negative interest rates imposed between 2015 and 2022.

The SNB is facing a complex equation: the strength of the Swiss franc, the risk of deflation and shrinking room for manoeuvre to intervene in the foreign exchange market.

"We do not think the SNB is done with rate cuts and expect it to cut by a further 25 basis points in September as deflation will prove more persistent than officials anticipate," thereby taking interest rates to minus 0.25 percent, said Adrian Prettejohn, Europe economist at the London-based research group Capital Economics.