Market Reaction:
- The Swiss Franc (CHF) weakened after the Swiss National Bank (SNB) held its policy rate at 0%, as expected.
- Despite this, safe-haven demand for CHF remains strong and helps offset concerns about potential negative interest rates.
SNB Policy and Forward Guidance:
- SNB signaled that while the threshold for negative interest rates is high, it cannot be ruled out.
- SNB President Martin Schlegel stated the central bank is ready to cut rates further if necessary.
Economic Outlook:
- Inflation forecast:
- Medium-term inflation remains unchanged and within the price stability range.
- GDP downgrade (2026):
- Growth forecast was lowered to “just under 1%”, down from the previous 1–1.5% range.
- The downgrade was linked to higher US tariffs, which are expected to impact Swiss exports.
- Resolution of the US-Switzerland trade dispute could reduce pressure on the SNB to ease further.
Market Expectations:
- The swaps market is pricing in a ~50% probability of a 25bps rate cut (to -0.25%) within the next 12 months.
BBH Summary:
- While rate cut risks remain, CHF is still supported by its safe-haven status, which outweighs the downward pressure from potential SNB easing.