What does the cautious Swiss interest rate cut mean for investors?

Swiss rates at zero but not negative

A sixth consecutive interest rate cut from the Swiss National Bank (SNB) at its June meeting lowered the policy rate to 0%. However, this 25 bps cut countered market expectations of a more proactive 50bps cut that would have taken the rate into negative territory.

The SNB’s reduction bucks the trend for many global central banks – notably the Federal Reserve at its 18 June meeting – which have favoured a ‘wait and see’ stance in the face of global economic growth being disrupted by increased trade tensions. However, President Trump’s Liberation Day tariffs have made an outsized impact on the Swiss economy, with the safe haven Swiss franc appreciating by roughly 10% against the US dollar so far this year. This currency strength has had a knock-on effect on domestic inflation, which turned mildly negative in May (down -0.1% year-on-year).

FIG 1. Swiss franc currency versus the US dollar and euro in 2025¹

These two decisive factors led many observers to anticipate a larger 50 bps rate cut from the SNB, which would have signalled a certain calm to markets. However, by falling short of these expectations, the new SNB chairman, Martin Schlegel, appears eager to differentiate himself from his predecessor, who was well known for exceeding market expectations and taking advantage of the element of surprise with policy actions.  In addition, Schlegel also expressed caution about some of the negative consequences of cutting interest rates below zero. His emphasis on this point leads us to believe the bar will need to be quite high before he is prepared to allow interest rates to move into negative territory.  

Read more: Swiss bonds: why active investing deserves a second look

Trade tensions weigh on economic outlook

The SNB monetary policy committee’s accompanying statement emphasised that global economic conditions have somewhat deteriorated since the March meeting, reflecting the substantial post-Liberation Day market shock. It cautioned “that growth in the global economy will weaken over the coming quarters” as “higher US import tariffs are likely to curb global trade” and said that “the high level of trade policy uncertainty is having a negative impact on global investment momentum”.

Turning to the Swiss economy, the committee highlighted that the appreciation of the Swiss franc would continue to weigh on the domestic economy for the remainder of the year, reflecting weaker global demand. This forecast of more subdued economic growth was backed up by a sharp drop in the manufacturing PMI, which fell to 42.1 in May from 45.8 the previous month, as shown in Figure 2, and marked the lowest reading since December 2023.

FIG 2. Swiss PMIs show the recent divergence between manufacturing and services²

Isolated currency appreciation

The deteriorating economic picture alongside the fall in inflation had encouraged many market observers to anticipate more substantial easing from the SNB. Yet, the strengthening of the Swiss franc has been isolated to its relative value versus the US dollar rather than the euro, whose value has remained largely unchanged (as shown in Figure 1); this could, therefore, have had a more restraining influence on the central bank by signalling that the move is more about the US dollar’s depreciation than anything else.

With the Swiss economy being far more closely interlinked with Europe than the US, this isolated appreciation should, in effect, pose far less of a challenge to the Swiss economy than a broader strengthening of its currency would have.

A final influencing factor may have been Switzerland’s ongoing negotiations with the Trump administration regarding tariffs. The initial Liberation Day announcement issued a 35% tariff on Switzerland, which was significantly higher than the 25% tariff imposed on the eurozone, both of which were subsequently paused. In addition, Switzerland is currently on the US’s currency manipulation watchlist and was labelled a currency manipulator by the previous Trump administration.  Given these sensitivities, a less aggressive cut by the SNB may have been deemed as less provocative, although the SNB chair did assert that the central bank remained “willing to be active in the foreign exchange market as necessary”.

Looking ahead, despite Schlegel’s reservations, we believe the prospect of negative interest rates remains a possibility, and ongoing currency, inflation and economic growth activity will be closely monitored.