Swiss National Bank holds rates as expected, sees inflation largely contained

The Swiss National Bank kept its benchmark interest ‌rate ​on hold on Thursday, resisting pressure to counter rising inflation caused by war in the Middle East which has seen other central banks hike borrowing costs. The SNB kept its policy rate at 0%, as forecast by all economists polled by Reuters, as well as markets, and adjusted its language on foreign exchange market intervention following ‌a weakening of the Swiss franc in recent months.

"Medium-term inflationary pressure has increased only slightly. Monetary policy is appropriate to keep inflation within the range consistent with price stability and supports economic development," the SNB said in a statement. The SNB said inflation would likely climb somewhat higher in the fourth quarter, before declining again in the course of 2027 as a recent spike in energy price pressures eased.

A number of analysts saw little indication that the SNB was moving ‌towards higher interest rates soon. Market expectations are that there will be a rate hike next year at the latest. NEW LANGUAGE ON INTERVENTIONS

The central bank said it is willing to be active in the foreign ‌exchange market as necessary to ensure appropriate monetary conditions. Previously it said it had an increased willingness to intervene in the market to counter an excessive appreciation of the franc.

The franc slid to its weakest since May 2025 against the dollar, which rose 0.23% on the day to 0.827 francs. It fell sharply against the euro, which climbed 0.34% in its largest one-day rise in a month, to 0.943 francs. Yields on 2-year Swiss government debt fell nearly 4 basis points on the day to 0.3313% after the decision, having hit their highest since November ⁠2024 earlier ​in the day.

The Swiss central bank has kept its policy ⁠rate at 0%, the lowest among major central banks, since June 2025, despite Swiss inflation accelerating to its highest level in two years. Still, the acceleration in inflation to 0.8% in August, driven by surging fuel prices stemming from the conflict in Iran, was well within ⁠the SNB's target range of 0%-2%.

This allowed the SNB to keep its benchmark rate unaltered, contrasting with the European Central Bank which earlier this month raised rates. So too did the US Federal Reserve, which signalled more rate increases were on the ​way. "The question is thus for how much longer it will remain appropriate to keep rates at zero and thereby allowing the real interest rate to become more and more negative at a time ⁠when growth is strong," said Gianluigi Mandruzzato, senior economist at EFG Asset Management.

The SNB's monetary policy stance looks increasingly at odds with other central banks after a busy morning for policymakers. The Norwegian central bank raised its policy interest rate by 25 basis points to 4.50% on Thursday. And ⁠while ​Sweden's central bank kept its key rate unchanged, it pointed strongly towards a possible rate hike later this year.

The Bank of England last week kept its interest rates unchanged, but it warned they may have to go up if the Iran war drags on and pushes energy prices higher. BRIGHTER GROWTH OUTLOOK

Analysts were unsurprised by the SNB's decision to keep rates on hold. "Swiss inflation is clearly under control and is not broad-based, being driven mainly ⁠by higher fuel prices, so there was no need for the SNB to raise rates," said Charlotte de Montpellier, senior economist at ING Bank.

"I think the SNB will stay at the current level for some time – while ⁠other central banks are facing higher inflation, this is not ⁠an issue for the SNB." The SNB nudged up its inflation forecasts for the coming months, predicting it would average 1.2% in the final quarter of this year and the first quarter of 2027, before easing again.

In 2027, it now expects inflation to average 0.8%, an increase of 0.2 percentage points from its June forecast. It ‌also predicted economic growth will be ‌stronger than previously forecast this year at between 1.5% and 2% following an unexpectedly robust performance in the second quarter.

(Reporting ​by John Revill, editing by Dave Graham, Alexandra Hudson)