SNB holds key rate at zero, sees little change in mid-term inflation pressure

The Swiss National Bank maintained its benchmark interest rate at 0% for a year, citing unchanged medium-term inflationary pressures despite recent inflation upticks driven by higher fuel costs.

The Swiss National Bank left its benchmark interest rate unchanged on Thursday, saying that price pressures over the medium term had barely changed despite a recent uptick in inflation stoked by higher fuel costs arising from the Iran war. The ‌decision, which extended to a year the period the SNB has kept borrowing costs at 0%, the lowest level among the world's main central banks, was expected by markets and all the analysts polled by Reuters. "Inflation has risen in recent months as a result of higher energy prices," the SNB said in a statement. "Medium-term inflationary pressure, however, is ‌virtually unchanged compared with the last monetary policy assessment."

The Swiss franc fell slightly after the decision, with the dollar last up 0.11% at 80.03 francs. In contrast to ‌the SNB, the European Central Bank already raised rates last week to counter a build-up in price pressures, the first major central bank to do so. Meanwhile on Wednesday, the U.S. Federal Reserve left interest rates unchanged despite inflation stuck well above its target. The Bank of England and Norway's central bank are also due to give policy updates on Thursday, with neither expected to change borrowing costs.

Swiss inflation remained ⁠at 0.6% ​in May, the highest level since November ⁠2024, driven by a spike in fuel prices, but core inflation, which excludes volatile energy costs, remained low at 0.3%. Both readings are well within the SNB's 0%-2% target range which it defines as price ⁠stability. Meanwhile, the safe-haven Swiss franc, which surged at the outbreak of hostilities in the Middle East to its highest level in more than a decade against the euro, has helped ​shield Switzerland from inflation by making imports cheaper.

The low weighting of petrol in the consumer goods basket has also helped Switzerland avoid price increases similar to ⁠the 3.2% rate seen in the euro area in May. Earlier this year, the SNB said it had increased its readiness to intervene in the foreign exchange markets to counter a "rapid and excessive appreciation" of the ⁠franc. The ​SNB on Thursday modified its language from the previous rate decision slightly, saying it has an increased willingness to intervene in the foreign exchange market "if necessary."

Extending the zero policy rate was a logical step given the continued benign inflation picture and some slack in the Swiss economy, economists said. "While the Swiss economy may look ⁠solid, capacity utilisation, inflation and consumer confidence are still low, while unemployment is rising," said UBS economist Alessandro Bee, noting geopolitical uncertainties remained elevated.

Charlotte de Montpellier, senior economist ⁠at ING Bank, described the situation for the ⁠SNB as very comfortable. "Swiss inflation is very much under control, so there was no reason to change course," she said.

As other central banks are becoming more hawkish, it also reduces the appreciation pressure on the Swiss franc, Montpellier noted, saying she ‌did not expect the SNB ‌to start raising rates this year, next or even in 2028.