ZURICH. The Swiss National Bank is keeping negative interest rates in its toolkit even as the franc trades near a one year low against the euro, Governing Board member Petra Tschudin said on 21 August. The policy rate has stood at zero since the June assessment, a level that leaves almost no room for conventional easing, and Tschudin’s remarks were read in the market as a reminder that the next move, if there is one, could still be down.
Tschudin attributed the franc’s recent weakness primarily to higher interest rate expectations abroad. When foreign central banks are priced to stay restrictive, the yield gap between Swiss assets and foreign alternatives widens, making the franc less attractive to hold. The currency has softened about 4 per cent from its March peak near 0.90 against the euro and was recently quoted around 0.9385, close to its weakest level in a year.
Swiss inflation slowed to 0.4 per cent in July, its lowest reading in four months, helped by anchored expectations and the low weight of oil in the consumer basket. The SNB’s June forecasts put average inflation at 0.6 per cent in 2026 and 2027, and 0.7 per cent in 2028, numbers that sit comfortably inside the bank’s definition of price stability as annual CPI increases below 2 per cent.
The same June assessment noted that the franc’s depreciation since March had itself contributed to looser monetary conditions. That observation matters. A weaker currency imports a little inflation and eases the squeeze on exporters in machinery, watches and precision instruments, which is why a stretch of franc softness has been received with more relief than alarm on Paradeplatz.
Tschudin cautioned against reading the inflation forecasts as a promise that rates will stay at zero for three years. The SNB does not publish an interest rate path, she said, and the current projections should not be taken as a signal that policy is on hold through 2028. Artificial intelligence, she added, could lift inflation in the short term, another reason to keep options open.
Markets have begun to treat the franc as a possible substitute for the yen in carry trades, after rare United States Japanese intervention to support the Japanese currency. Analysts at Rabobank last week raised their 9 to 12 month euro franc target to 0.95, and several houses argue that a currency with Swiss borrowing costs pinned at zero is an obvious funding alternative if Tokyo keeps the yen jumpy.
The SNB would likely welcome a measured further softening. It has said it remains prepared to intervene if the franc moves too far, too fast in either direction, with particular concern reserved for a rapid appreciation that could drag inflation even lower. Negative rates, unused for now, remain the other lever.
Exporters have spent years adapting to a strong franc by moving upmarket. A period of relative calm in the currency would not reverse that shift, but it would widen margins that have been thin since the March peak. Tourism officials, who watch the euro exchange rate as closely as any factory manager, have already begun to talk of a more competitive winter season.
The next scheduled monetary policy assessment is in September. Economists generally expect the bank to hold at zero through 2027, treating further cuts as a contingency rather than the baseline. Financial markets have at times priced a hike as early as March 2027, a view most Swiss economists still regard as premature.
For now the message from the Governing Board is one of flexibility. Inflation is low, the franc has given back some of its safe haven premium, and the instruments for easing remain on the table. Patience, in Zurich, still runs in both directions.