SNB Cuts Rates to Zero: Switzerland Enters New Monetary Territory

Starting from June 20, 2025, the Swiss National Bank (SNB) made a significant monetary policy adjustment, cutting its policy rate by 25 basis points to zero. This change is currently in effect. Switzerland's entry into deflation was the main reason for this, as the Consumer Price Index (CPI) in May, 0.1% year-on-year, fell below the SNB's goal of 0-2%. The Swiss franc's rise, buoyed by its secure hold on the dollar and global uncertainties, has intensified these deflationary challenges by causing a decline in import prices.

This has been reflected in the revised inflation forecasts published by the SNB, which now project average annual inflation rates of 0.2% for 2025, 0.5% for 20026 and again only 0.7% for another decade. Inflation is projected to remain significantly lower than the target of bank officials for years to come. It's the sixth consecutive rate cut since March 2024, and it represents an easing trend. In response, the SNB has indicated its willingness to take additional measures, including potential interventions in foreign exchange markets. Additionally, it has not excluded the possibility of a return to negative interest rates if deflation persists.

This move by the SNB reflects a wider trend of global monetary softening, following rate cuts from Europe's Central Bank and expectations for further rate cuts in the coming months from the U.S. Federal Reserve. According to the SNB, Switzerland's GDP is expected to rise by 1% to 1.5% in 2025 and 2026, with a slight increase in unemployment. Despite the deflationary conditions, central banks remain vigilant and prioritize currency stability and price risks.