Swiss National Bank an outlier in holding rates and saying inflation under control

The Swiss National Bank ‌stood apart ​from other central banks on Thursday by keeping its benchmark interest rate on hold and stating that rising inflation caused by war in the Middle East was not a threat to Swiss price stability. 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.

The decision contrasted with the Norwegian central bank which raised its policy interest rate on Thursday, while the Swedish central bank also pointed towards a rate hike later this year after keeping its borrowing costs on hold. The European Central Bank earlier this month raised rates, as did the US Federal Reserve, which ‌signalled more rate increases were on the way.

Although Swiss inflation has risen, at 0.8% it was still low by international standards, and would start trending downwards again next year as energy prices declined, SNB ‌Chairman Martin Schlegel said. "Our new conditional inflation forecast indicates that medium-term inflationary pressure has only increased slightly compared with June," Schlegel told reporters.

"The inflation forecast remains within the range consistent with price stability...over the entire forecast horizon," he added, referring to the SNB's target for annual price increases of 0% to 2%. The SNB said inflation would likely climb somewhat higher in the fourth quarter, before declining again in the course of 2027.

Schlegel also said the strong recent economic growth in Switzerland would not likely cause higher inflation. The ⁠SNB would keep ​its options open and examine the data before deciding ⁠its next move in December, he added.

Switzerland has avoided the worst of the global inflationary spike because inflation was already very low in the country before the Iran war, while fuel costs make up a much smaller part of the consumer goods ⁠basket. A number of analysts saw little indication that the SNB was moving towards higher interest rates soon, while markets priced only a slightly higher probability of a rate hike in December at 52%.

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, toning down its previous comments that it had "increased willingness" to curb the safe haven ⁠currency's rise.

After the decision, 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. 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.