Switzerland is charging ahead with its plan to keep intervening in foreign exchange markets, even after the US government flagged the country for possible currency manipulation.
On Thursday, the Swiss National Bank (SNB) dropped its key interest rate to 0%, and Chairman Martin Schlegel told Swiss broadcaster SRF on Saturday that monetary policy will continue to include forex actions if needed to control inflation.
According to Reuters, the SNB will step in “to ensure price stability,” ignoring Washington’s recent move to add Switzerland to a watchlist for unfair currency practices.
The US Treasury made that decision earlier this June, pushing Bern into a high-stakes position. If the US escalates the issue, Switzerland could face up to 31% in trade tariffs. Martin said that wouldn’t stop the bank from doing what it believes is necessary.
“Switzerland and the SNB are not currency manipulators,” he said. “When we have intervened in the past, we have done it only to achieve our goal of price stability. Our motivation is not to gain an unfair advantage for Swiss exporters.”
SNB cuts rates again while ignoring watchlist threat
This latest rate cut, 25 basis points down to 0%, was widely expected by markets. Ahead of the decision, traders had priced in an 81% chance of it. Only 19% expected something larger. The SNB’s statement explained that “inflationary pressure has decreased compared to the previous quarter,” and the central bank “is countering the lower inflationary pressure” with its decision.
Schlegel told CNBC’s Carolin Roth that while short-term drops in prices were visible, “current negative inflation for us is not a reason to lower interest rates.” What matters, he said, is the “medium term.” Even repeated negative monthly prints wouldn’t change the bank’s approach.
The SNB lowered its inflation forecast for 2025. It now expects average inflation at 0.2% this year and 0.5% in 2026. The bank said the economic outlook remains uncertain and pointed to “developments abroad” as the biggest threat. It’s not the first time Switzerland has dealt with weak inflation. Similar conditions dominated the 2010s and early 2020s.
Economist Charlotte de Montpellier from ING, who covers France and Switzerland, explained that the Swiss franc continues to gain strength during periods of global stress. She said this “systematically pushes down the price of imported products,” which hits the consumer price index. With Switzerland being a small economy that depends heavily on imports, CPI inflation takes a hit every time the franc strengthens.
Franc’s rise fuels deflation as SNB supports new UBS capital rules
To manage this, the SNB is keeping interest rates “systematically lower than elsewhere,” according to Charlotte. That approach is meant to slow the rise of the franc. Despite the cut, the Swiss currency stayed firm. After the Thursday decision, the US dollar last traded flat against it.
The SNB’s aggressive monetary actions are paired with support for stricter rules on UBS, Switzerland’s biggest bank. Martin backed new government proposals that could force UBS to hold an extra $26 billion in core capital. He said, “This is not a radical solution. Everyone has an interest in UBS doing well, that UBS is a strong bank, and that UBS is also a bank that is strongly capitalised and well prepared in terms of liquidity.”
Martin also mentioned past discussions with US officials when Switzerland landed on the watchlist before. He said there was a “very good” understanding of why the country had been active in the forex space. If the country ends up staying on the list again, he said it would just lead to “further dialogue.”
While other central banks are focused on fighting inflation, Switzerland is managing the opposite. Deflation is back, and the SNB is using every tool available — interest rates, market interventions, and bank capital rules — to keep control. And whether the Oval likes it or not, the SNB isn’t backing down.
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