Swiss National Bank (SNB) Outlook for March: Continuous Rate Cuts
2025-03-20
■ The SNB is expected to lower the policy rate to 0.25% at its monetary policy meeting in March
■ Main reasons: (1) Slowing inflation, (2) curbing the appreciation of the Swiss franc, and the market is concerned about whether the negative interest rate policy will be restarted
The Swiss National Bank (SNB) will announce the results of its monetary policy meeting on March 20. The market expects that since entering the interest rate cut cycle in March last year, the SNB will decide to cut interest rates for five consecutive meetings, and the policy rate is expected to fall to 0.25%. This interest rate level will be lower than Japan's (0.50%) and may become the lowest level among major developed countries. Last September, Jordan, then SNB governor, stepped down and Schlegel, then vice governor, was promoted to governor, but the interest rate cut policy remained consistent and the policy stance remained consistent.
The SNB maintained its interest rate cut policy mainly for two reasons: (1) SNB inflation slowed down, and (2) curbing the appreciation of the Swiss franc. (1) Switzerland's consumer price index (CPI) year-on-year growth has been within the SNB's inflation target range (0-2%) since January last year, and the CPI rose by 0.3% year-on-year in February, falling to its lowest level since April 2021. This starkly contrasts the difficulties European and American countries face in achieving their inflation targets in the "last mile". (2) The recent exchange rate of the Swiss franc against the euro is just over 0.96 Swiss francs, and the exchange rate against the US dollar is just over 0.88 Swiss francs. Although it has fallen from the highest level of the Swiss franc since January 2015 set last fall (just over 0.92 Swiss francs against the euro and just over 0.83 Swiss francs against the US dollar), it has not completely deviated from the high range of the past 20 years. In addition, if the SNB hopes to push the CPI back to the middle of the inflation target range (1%) through rising import prices, its position on curbing the appreciation of the Swiss franc has not changed.
To curb the appreciation of the Swiss franc, the SNB deleted the statement on selling foreign exchange in its December 2023 statement. At that time, the CPI growth rate began to return to the target range, which was considered to be the reason for the adjustment. The SNB purchased foreign exchange worth 1.2 billion Swiss francs in 2024 and sold foreign exchange worth up to 132.9 billion Swiss francs in 2023, indicating a change in its policy stance.
The focus in the future is likely to be whether the negative interest rate policy will be restarted. Since taking office last fall, SNB President Schlegel has repeatedly expressed his views on the return of the negative interest rate policy. In January, he did not rule out the possibility of restoring negative interest rates but said that if it was necessary, it would be re-implemented. However, in terms of inflation stability, he pointed out that a negative inflation rate in a single month would not be a problem, and the key is still the medium-term trend. With the zero-interest rate level approaching, President Schlegel's latest statement on the negative interest rate policy deserves close attention.
■ Main reasons: (1) Slowing inflation, (2) curbing the appreciation of the Swiss franc, and the market is concerned about whether the negative interest rate policy will be restarted
The Swiss National Bank (SNB) will announce the results of its monetary policy meeting on March 20. The market expects that since entering the interest rate cut cycle in March last year, the SNB will decide to cut interest rates for five consecutive meetings, and the policy rate is expected to fall to 0.25%. This interest rate level will be lower than Japan's (0.50%) and may become the lowest level among major developed countries. Last September, Jordan, then SNB governor, stepped down and Schlegel, then vice governor, was promoted to governor, but the interest rate cut policy remained consistent and the policy stance remained consistent.
The SNB maintained its interest rate cut policy mainly for two reasons: (1) SNB inflation slowed down, and (2) curbing the appreciation of the Swiss franc. (1) Switzerland's consumer price index (CPI) year-on-year growth has been within the SNB's inflation target range (0-2%) since January last year, and the CPI rose by 0.3% year-on-year in February, falling to its lowest level since April 2021. This starkly contrasts the difficulties European and American countries face in achieving their inflation targets in the "last mile". (2) The recent exchange rate of the Swiss franc against the euro is just over 0.96 Swiss francs, and the exchange rate against the US dollar is just over 0.88 Swiss francs. Although it has fallen from the highest level of the Swiss franc since January 2015 set last fall (just over 0.92 Swiss francs against the euro and just over 0.83 Swiss francs against the US dollar), it has not completely deviated from the high range of the past 20 years. In addition, if the SNB hopes to push the CPI back to the middle of the inflation target range (1%) through rising import prices, its position on curbing the appreciation of the Swiss franc has not changed.
To curb the appreciation of the Swiss franc, the SNB deleted the statement on selling foreign exchange in its December 2023 statement. At that time, the CPI growth rate began to return to the target range, which was considered to be the reason for the adjustment. The SNB purchased foreign exchange worth 1.2 billion Swiss francs in 2024 and sold foreign exchange worth up to 132.9 billion Swiss francs in 2023, indicating a change in its policy stance.
The focus in the future is likely to be whether the negative interest rate policy will be restarted. Since taking office last fall, SNB President Schlegel has repeatedly expressed his views on the return of the negative interest rate policy. In January, he did not rule out the possibility of restoring negative interest rates but said that if it was necessary, it would be re-implemented. However, in terms of inflation stability, he pointed out that a negative inflation rate in a single month would not be a problem, and the key is still the medium-term trend. With the zero-interest rate level approaching, President Schlegel's latest statement on the negative interest rate policy deserves close attention.