SNB’s Price Stability Goal: A Return to Negative Interest Rates?

With the strong franc pushing Swiss inflation to its weakest point in over four years, raising concerns about the Swiss National Bank’s ability to maintain its price stability mandate around the 2% level that underpins economic growth, the focus now shifts to: What policy actions are financial markets anticipating from the SNB in this context? and What impact is this scenario having, and expected to have, on the dynamics of Forex trading involving the Swiss Franc?

A Tradition of Stability: Switzerland’s Low Inflation Even Amid Global Shocks

Switzerland has a well-established history of subdued inflation. The country even managed to keep its inflation rates significantly below those of the US and the EU, when energy prices spiked dramatically after Russia invaded Ukraine.

The Swiss National Bank itself projects an average inflation rate of just 0.4% for the current year. However, the latest inflation data paints an even weaker picture than anticipated - a situation that doesn’t fit the price stability mandate of the SNB.

Headline Inflation Hits Four-Year Low at 0%

Consumer prices stagnated in April compared to the previous year, falling sharply from 0.3% in March to 0%. This significant deceleration undershot most forecasts and inflation reached its lowest level in more than 4 years.

Core Inflation Decelerates More Than Anticipated

Core inflation, which excludes volatile items, also saw a more pronounced slowdown than expected, registering at +0.6% year-on-year (down from April 2024) and a mere +0.1% compared to the previous month (March 2025).

HICP Confirms Subdued Inflationary Pressures

Even the Swiss Harmonised Index of Consumer Prices (HICP), designed for international comparison, showed a modest increase of +0.7% month-on-month but only +0.3% year-on-year, further highlighting the prevailing low inflationary environment.

Why Did Inflation Hit 0% in April in Switzerland?

Switzerland’s inflation reaching 0% in April is no coincidence. At the heart of this price stability is the ongoing strength of the Swiss franc (CHF), which has played a key role in keeping the cost of living in check—especially when compared to other economies in Europe or the United States.

The Power of a Strong Currency

The Swiss franc has been gaining value steadily, particularly in recent years. In April 2025, it reached a record high against the US dollar and continued to strengthen against the euro—up nearly 10% against the dollar this year alone. This means that Swiss consumers and businesses can buy foreign goods and services more cheaply, because their currency holds more purchasing power.

In simple terms: when the Swiss franc gets stronger, the price Switzerland pays for imported products—like food, fuel, and manufactured goods—goes down. This directly reduces inflation, since many of the everyday products consumed in Switzerland come from abroad.

A Historical Perspective About the Strength of the Swiss Franc

The Swiss franc has long been considered a "safe haven" currency. In times of global uncertainty—like economic crises, trade tensions, or political instability—investors tend to buy Swiss francs to protect their money. This demand drives up the franc’s value.

This isn’t new. Back in 2008 during the global financial crisis, and again during the euro crisis in 2011, investors flocked to the franc. The Swiss National Bank (SNB) even had to step in to stop the franc from getting too strong by introducing a cap against the euro. When they removed that cap in 2015, the franc spiked again. Since then, the SNB has followed a policy of occasional, discreet interventions in the currency markets to manage the franc’s value without clearly defined limits.

Despite these efforts, the franc has continued to rise, especially in politically unstable times, such as during recent announcements from former President Donald Trump that shook global markets again.

How a Strong Franc Holds Down Inflation

The effect of a rising Swiss franc on inflation is simple.

Imagine a product from the Eurozone that costs €100. If the franc strengthens by 10% against the euro, that same product effectively becomes 10% cheaper in Switzerland. Since many consumer goods in Switzerland are imported, his appreciation significantly lowers overall prices.

This isn’t just a theoretical impact. Over time, a strong franc has repeatedly helped Switzerland avoid the high inflation that has plagued other countries. By making imported goods cheaper, it offsets rising domestic costs and keeps inflation low or even at zero, as seen in April.

The Bigger Picture: Stability, Confidence, and Economic Strength

Switzerland’s political neutrality and strong institutions also boost confidence in its currency. In today’s world, where geopolitical tensions and trade uncertainties are common, investors trust the Swiss franc as a stable store of value. This adds consistent demand for the currency and reinforces its strength.

The benefit isn’t just price stability.

A strong currency, lower inflation, and stable interest rates also create favorable conditions for the Swiss economy as a whole. Exporters may face some challenges when selling goods abroad—because Swiss-made products become more expensive for foreign buyers—but overall, the low inflation helps sustain purchasing power at home, supports employment, and keeps the economy running smoothly, which tends to attract investors.

Will the SNB Implement Negative Interest Rates Again?

After five consecutive rate cuts—bringing its key interest rate down from 1.75% in March 2024 to just 0.25%—markets are now betting that the SNB will lower rates to 0% at its next policy meeting on June 19. Some economists even believe a return to negative interest rates is on the table—a possibility confirmed by SNB Chairman Martin Schlegel himself.

SNB Prepared to Deploy FX Tools and Negative Rates for Price Stability

He recently acknowledged rising concerns about low inflation and strong Swiss Franc, as well as volatile markets and geopolitical risks, stating that the central bank is prepared to take further action to keep inflation aligned with its price stability mandate. This includes both foreign exchange interventions to weaken the franc and, if necessary, a new negative interest rates era.

Although the bank may intervene in the currency markets, such actions carry the risk of being seen as currency manipulation, particularly by the U.S., potentially worsening trade tensions.

Anticipation of Further Easing Grows in Bond Market

Yields on short-term Swiss government bonds have fallen back into negative territory—with two-year yields dropping to -0.18%, a level not seen in over two years. Securities with maturities up to 5 years are now trading below 0%, signaling that investors are bracing for rates to stay low—or go lower—for some time.

One More Inflation Report Might Hold Key to SNB’s Next Move

While June may be too soon for a move back into negative territory, given that the SNB will have only one more inflation report before then, the direction of the next appears to be clear. If the Swiss franc continues to climb and inflation remains flat or negative, the SNB could be forced to act more aggressively in the second half of the year.