By Dave Graham
ZURICH (Reuters) – Market turmoil unleashed by U.S. trade tariffs has boosted the Swiss franc, piling pressure on the country’s export-oriented economy and potentially pushing the Swiss National Bank closer to negative interest rates with inflation near zero.
Since U.S. President Donald Trump last week shocked world markets by announcing hefty import tariffs for most of the global economy, more and more analysts have forecast that the SNB will again cut rates.
The SNB has repeatedly said that even though it would rather not do so, it is prepared to take its benchmark rate into negative territory to safeguard price stability, which it defines as inflation of between 0-2%.
“Negative rates aren’t something we’d be happy about, but it’s an instrument that really helps us if necessary in stabilising inflation,” SNB governing board member Petra Tschudin said last week after the U.S. tariffs were unveiled.
The SNB’s key rate is currently at just 0.25% and Swiss inflation at the lower end of its target range, at 0.3%.
The SNB declined to comment for this article.
Viewed by investors as a safe haven asset, the franc on Monday hit a six-month high versus the dollar, its highest level against the euro since the end of 2024 and against the pound since last August.
To the dismay of Swiss officials, Trump announced heavier tariffs for Switzerland than its neighbours in the European Union or Britain, prompting economists to trim forecasts for Swiss economic growth.
A weaker economy is likely to put downward pressure on inflation as will a stronger franc because it reduces the cost of imports, analysts note.
The SNB’s next scheduled monetary policy decision is in June, and analysts argue it can afford to watch what other central banks do before making any major move. That did not mean it could not act before June though, some said.
Markets are currently leaning towards another 25 basis point rate cut by the SNB, according to LSEG data.
DOWN, DOWN
With inflation already barely above zero, the risk is growing that it could temporarily slip into negative territory, said GianLuigi Mandruzzato, an economist at bank EFG, pointing to the impact of falling oil prices.
“The risk of deflation has risen, and that explains why the chances of seeing again negative interest rates have also risen quite meaningfully,” he said.
The SNB moved interest rates into negative territory from late 2014 to 2022 to limit the franc’s appreciation, although the policy was unpopular with savers.
It has also intervened on foreign exchange markets to weaken the franc and meet its inflation target, but the Trump administration said currency manipulation was one of the factors behind its tariffs, raising the risk of blowback.
Adrian Prettejohn, an economist at Capital Economics, said he expected the SNB to take its key rate to zero at its June meeting, and that it would not hesitate to go lower.
“The risks are towards the SNB acting earlier than that – i.e. cutting outside of a scheduled meeting – and/or cutting by a larger amount and taking the policy rate negative,” he said.
Harald Preissler, capital market strategist at bank Bantleon, said he presently did not expect the U.S. tariffs to seriously dampen Swiss economic growth, but instead saw greater risks on the inflationary outlook.
Any major diversion of global trade in goods from the U.S. to the EU and Switzerland would likely exert considerable deflationary pressure, at least temporarily, he said.
“In this case, the SNB is likely to cut interest rates, making the reintroduction of negative interest rates more likely. We assign a 40% probability to this risk scenario.”
(Reporting by Dave Graham; Additional reporting by Ariane Luthi, Paul Arnold and Amanda Cooper, Editing by Alexandra Hudson)
