Switzerland returns to the era of "zero" interest rates

Low inflation is not unusual for Switzerland, which experienced several periods of deflation in 2010 and 2020. The strength of the country’s currency, the Swiss franc, is a major factor contributing to this trend.

“As a safe-haven currency, the Swiss franc tends to strengthen when there is tension in global markets,” Charlotte de Montpellier, senior economist for France and Switzerland at ING, told CNBC.

Amid high levels of global economic uncertainty, the franc has been steadily strengthening in recent months and is widely expected to continue this trend, suggesting continued challenges for the SNB.

Negative interest rates?

Adrian Prettejohn, Europe economist at Capital Economics, told CNBC ahead of Thursday's interest rate decision that he expected rates to be cut to -0.25% this year, but noted that the SNB could go further.

"There is a risk that the SNB will go further if inflationary pressures do not start to rise, then the lowest monetary policy rate could be -0.75%," he told CNBC.

Prettejohn said interest rate cuts weigh on currencies, making borrowing cheaper and encouraging investment. But there are also concerns and risks associated with negative rates, including for savers who could lose any gains on savings and for banks that will reap lower profits on loans.

Thursday’s rate cut in Switzerland was the sixth in the current round of monetary easing. The SNB decides on rates quarterly and has cut them at every meeting since March 2024.