SNB holds key rate at zero, sees little change in medium-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 0.35% at 80.25 francs. ECB HAS ALREADY RAISED RATES 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, but with inflation stuck well above the Fed's target its policymakers expect a hike in the course of this year. Norway's central ‌bank also kept its policy interest rate on hold on Thursday, though it flagged that borrowing costs will likely be raised later this year. The Bank of England is expected to keep rates unchanged later in the day.

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. MODIFIED LANGUAGE ON INTERVENTIONS Earlier this ⁠year, the SNB expressed increased readiness to intervene in the foreign exchange markets to counter a "rapid and excessive appreciation" of the franc.

The SNB on Thursday slightly modified its language from the previous rate decision, saying it had an increased willingness to intervene in the ​foreign exchange market "if necessary." "It seems very clear that they aim at continuing to use forex interventions if needed. But only to counter a rapid and excessive appreciation of the franc," said ING senior economist Charlotte ⁠de Montpellier.

"So I think it's a tool they want to use during periods of market stress (such as in early March), but no longer on a permanent basis, as the SNB used to do in the past. I doubt they're intervening at the moment." 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. ING's de Montpellier described the situation for the SNB as very comfortable, with inflation under control.

As other central banks are becoming more hawkish, the appreciation pressure on the Swiss franc eases, de ⁠Montpellier noted, saying she did not expect the SNB to start raising rates this year, next year or even in 2028. The SNB said the main risks to the Swiss economic outlook were global developments, noting the ⁠situation in the Middle East could worsen again and curb economic ⁠activity.

"The upward pressure on the Swiss franc could also increase again," the SNB said. "Furthermore, U.S. trade policy continues to be a source of uncertainty." The SNB raised its Swiss inflation forecast for 2026 to 0.6% from 0.5% previously and by a tenth of a percentage point for each of the next two years. But it still predicted ‌average inflation to be clearly below 1%, ‌well within its target range.