Swiss National Bank before the end of the zero interest rate policy

It was an unusual picture of the Swiss economy that Martin Schlegel, head of the Swiss National Bank (SNB), painted at the end of last week. Inflation in the Alpine republic remains at a low level compared to the rest of Europe - but is increasing significantly.

According to the SNB forecast, inflation is likely to be 1.2 percent in the next six months. The central bankers had previously assumed 0.8 percent. This is also reflected in the exchange rates. The Swiss franc is currently worth less than 1.06 euros and is trading near its lowest level in twelve months.

The SNB did leave key interest rates at zero percent in its decision last Thursday. But by next year at the latest, experts expect that the SNB will also be the last central bank in the world to raise the key interest rate to more than zero. This means that the last bastion of the global zero interest rate policy is falling.

It is becoming increasingly clear that the Alpine republic is increasingly unable to escape inflationary pressure and rising interest rates worldwide. Because the SNB is lagging behind the European Central Bank and the US Federal Reserve (Fed) in the interest rate hike cycle, the Swiss franc is also weakening.

Daniel Hartmann, chief economist at asset manager Bantleon, writes in a recent study: “The widening interest rate gap between the SNB and the ECB has already left its mark on the franc: it has lost around five percent of its value against the euro since March.”

The hard national currency protected Switzerland for a long time from energy imports becoming more expensive. But now fuel prices between Basel and Geneva are also rising. The SNB economists see the recent increase in inflation as a pure energy price effect. Inflation pressure is expected to ease again in the second half of 2027.

Hartmann is convinced: “The recent weakness of the Swiss franc creates the basis for a moderate tightening of monetary policy – ​​also in the Swiss Confederation.” He expects that the first interest rate step could take place as early as December, but no later than March 2027.

According to the major bank UBS, “an interest rate increase window opens up for the SNB in the coming quarters”. Such a key interest rate increase is likely to support the devaluation of the Swiss franc for the time being. What happens next with Swiss monetary policy and thus also with the Swiss franc, which is considered a safe haven, depends on a number of factors, the UBS analysts continue to write.

“If global inflation remains high in 2027, the Fed and the ECB could continue to raise interest rates next year.” The expectation of rising interest rates in the euro zone and the USA could further weaken the franc. “This would suggest additional interest rate steps by the SNB in ​​the coming quarters.” This means that the zero interest phase in Switzerland is likely to end for the foreseeable future.