Switzerland’s return to zero interest rates marks a significant pivot in its monetary policy, driven primarily by declining inflation and a strengthening Swiss franc. The Swiss National Bank (SNB) has progressively lowered its policy rate, reaching 0.25% by March 2025, with expectations of a further cut to zero imminently. This move signals a departure from the era of positive interest rates that commenced in September 2022, following a prolonged period of negative rates from 2015 to 2022.
The Shifting Economic Landscape
The backdrop for this policy adjustment is characterized by several key economic trends. Firstly, inflation in Switzerland has markedly decreased, falling into negative territory in May 2025 for the first time since March 2021. This deflationary pressure, largely attributed to falling energy prices and a robust Swiss franc, has fallen below the SNB’s target range of 0-2% for price stability. While inflation exceeded 9% in the US and 10% in Europe during 2022-2023, Switzerland experienced a more moderate inflation peak of 3.5% in mid-2022.
Secondly, the Swiss franc’s appreciation, driven by its safe-haven status amidst global economic uncertainty and trade policy concerns, has added further impetus for the SNB’s easing. The franc’s strength, which has seen it gain nearly 2% against a basket of currencies year-to-date, has historically been a concern for Swiss exports. The SNB’s past interventions, including negative interest rates, were partly aimed at curbing this appreciation.
Monetary Policy Under Review
The SNB’s policy rate has seen a consistent downward trend since March 2024, with the March 2025 cut marking the fifth in the current cycle. This proactive approach contrasts with the more cautious stance of other major central banks, such as the US Federal Reserve, which held rates steady in June 2025, and the European Central Bank, which had recently trimmed its rate.
The potential return to negative interest rates, a policy tool previously used from 2015 to 2022, is now a subject of discussion. While the SNB previously exited negative rates in September 2022, the current economic conditions are creating pressure to reconsider this stance. However, negative rates were unpopular with banks, savers, and insurance companies, and the SNB has indicated it would reintroduce them only if there’s a clear risk of deflation.
Economic Outlook and Implications
Switzerland’s economy showed steady growth in late 2024, supported by its services and manufacturing sectors, although unemployment saw a slight increase. The SNB projects GDP growth of 1% to 1.5% for 2025, fueled by increased real wages and looser monetary policy, though global demand weakness could impact trade.
The shift to zero interest rates has implications for various sectors. For the Swiss bond market, even with rates near zero, yields on CHF bonds remain positive, offering attractive returns due to term and credit risk premiums. The banking sector, however, faces challenges. The low-interest rate environment, particularly if it returns to negative territory, can impact net interest income and profitability. Banks that had adjusted their strategies during the negative rate period to focus on asset growth and deposit reduction might need to recalibrate their sales activities.
A Unique Path Forward
While most developed economies are moving away from zero or negative interest rates, Switzerland’s return to this policy environment positions it uniquely. The SNB’s commitment to monitoring the situation and adjusting policy as needed underscores its data-dependent approach. The future trajectory will likely depend on evolving inflation dynamics, global economic conditions, and the continued strength of the Swiss franc, with discussions already considering further rate cuts.
