Swiss central bank embarks on an era of transparency

Swiss rates unchanged despite tariffs

The Swiss National Bank (SNB) offered few surprises by leaving key interest rates unchanged at its September meeting. With rates held at 0%, Swiss monetary policy is already well below its neutral rate, enabling the central bank to keep all options on the table as the country navigates the economic implications of President Trump’s tariffs. 

In August, the US president imposed an unexpected 39% tariff rate on Switzerland – a much higher level than the 15% rate applied to the European Union – and in September announced a rate of 100% on pharmaceutical products. Despite ongoing government efforts to lower this rate, the central bank was compelled to factor the economic impact of these tariffs into its decision. 

Acknowledging the tariff impact on its growth outlook for the nation – dampened exports and investment – the central bank noted that the economic consequences have so far been limited.  The SNB continues to forecast GDP growth between 1% and 1.5% for 2025 as a whole, although this may fall just below 1% for 2026.

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Given the already stimulative interest rate position, we do not anticipate further action from the SNB to protect growth and believe that the overall economic impact from high US tariffs will remain manageable. However, the extent to which they affect individual sectors – notably the watch industry and medical device manufacturers – will be closely watched. 

In our view, the issue of tariffs is more of a political matter. To protect the economy, we could see the government apply some further policy levers, having already relaxed labour laws to provide a little more employment flexibility to help impacted industries weather the tariff shock.  

Deflation risk averted

In contrast to June’s policy meeting, when negative inflation was one of the decisive factors behind the interest rate cut, the last few months have been encouraging for the SNB. Prices have increased slightly over the quarter, rising from -0.1% in May to 0.2% in August. The central bank expressed confidence that inflation will remain within its range of price stability over its entire forecast horizon. 

FIG 1.  Switzerland inflation measures and conditional inflation forecast¹  

The Swiss franc was also less volatile over the last three months than it had been during the first half of the year, giving the SNB another reason to pause before making any further changes to monetary policy. And as this latest interest rate decision was essentially priced in, we do not expect any significant reaction from the Swiss currency. 

FIG 2. Switzerland exchange rates²
 

A stark shift in communication strategy

Since taking on his role as SNB chairman, Martin Schlegel has clearly expressed his belief that the hurdle for negative rates should be relatively high in order to avoid any adverse side effects. In June, he stated, “Negative rates also have negative side effects for savers, bankers, pension funds, and so on – we are very aware of that. If we were to lower rates into negative territory, then the hurdles would certainly be higher than with a ‘normal’ rate cut in positive territory.” 

As a result of this signposting, September’s policy decision was widely anticipated. The new chair has also implemented a further step in transparency by announcing that the SNB will commence publishing a summary of its monetary policy discussions. This move aligns with the international trend and should contribute to a better understanding of the decision-making process. 

Schlegel has previously commented that “Communication helps us to shape market expectations about interest rates so that they are conducive to price stability.”  However, we wonder if this increased transparency may diminish the impact of future policy announcements by diluting the element of surprise that had, on occasion, worked well for his predecessor. 

Looking ahead, we do not foresee the central bank taking monetary policy into negative territory. However, when the September meeting’s minutes are released in mid-October, we may gather further insight into the circumstances that could make this a possibility.