By Ed Frankl
Switzerland's central bank left its key interest rate unchanged for a second straight meeting, but signaled it is open to a further cut that would take borrowing costs below zero if a sustained period of falling prices threatens.
The Swiss National Bank held its policy rate as expected at 0% on Thursday, having stood pat at its last meeting in September after six consecutive quarterly cuts. However, it said further cuts remain an option.
"The SNB will continue to monitor the situation and adjust its monetary policy if necessary, in order to ensure price stability," the bank said in the accompanying statement.
The SNB decision follows the Federal Reserve's move to cut its key rate on Wednesday over concerns about the labor market, though officials signaled they might stay on hold for a while as progress on inflation stalled. The European Central Bank is expected to keep rates unchanged until well into 2026 after inflation stabilized around its 2% target.
At the press conference following the interest-rate decision, SNB Chairman Martin Schlegel reiterated that there was a higher bar to reducing rates into negative territory than to lower borrowing costs when rates were positive, given the hit to savers, bank profits and pension funds. Switzerland had sub-zero interest rates for more than seven years until September 2022.
The statement suggests that the bank is keeping its options open for future policy, said Melanie Debono, an economist at Pantheon Macroeconomics, in a note to clients.
However, while inflation in recent months was slightly lower than expected, in the medium term inflationary pressures were "virtually unchanged" compared with the September meeting, the bank said.
Annual consumer-price inflation hit the bottom of the SNB's 0%-2% target last month, against expectations by the SNB that it would pick up in the final quarter of the year.
While that might have raised concerns that prices could fall below the SNB's target, the bank has previously said it avoids relying too heavily on single monthly readings.
"The main point of interest in the policy statement was that officials seemed completely unfazed by the undershoot of inflation since the last meeting," Capital Economics Europe economist Adrian Prettejohn said in a note.
However, the SNB lowered its inflation expectations for 2026 to 0.3%, from 0.5% at its September meeting, and for 2027 to 0.6% from 0.7%, based on a 0% interest rate. Still, it said its forecasts were within the range of price stability over its entire forecast horizon.
The Swiss franc edged higher after the interest-rate announcement. While the franc has been relatively stable against the U.S. dollar since the September meeting, it has gained almost 13% since the start of the year. A stronger franc against other currencies makes imports cheaper, lowering inflation as a result while also making its exports less attractive to consumers in other nations.
Switzerland has faced an unusual problem in that it is seen by investors as a safe haven for their savings when geopolitical tensions mount. President Trump's trade-policy gyrations raised uncertainty and made other assets more risky, leading investors to flee to the franc.
Should the SNB want to continue to avoid negative interest rates, it could sell francs to weaken the currency and boost imports, and therefore the inflation rate.
"The SNB remains willing to be active in the foreign-exchange market as necessary," the central bank said, repeating previous guidance.
But the Trump administration's tariffs could continue to weigh on the country's export-driven economy.
In the summer, the U.S. placed a 39% tariff-one of the highest among trading partners globally-on many of Switzerland's exports, including luxury watches and machinery, prompting a contraction of the economy in the third quarter.
The Swiss government has since agreed to a 15% tariff deal on those goods, and other key exports such as pharmaceuticals are so far exempt from U.S. duties. The development was a positive one, Schlegel said in the press conference Thursday.
There are now signals that the economy is picking up, according to business surveys. The SNB upgraded its expectations for economic growth, projecting 2025 GDP growth at "just under" 1.5%--from 1% to 1.5% in its September forecast--and in 2026 to around 1%, from a little under 1% previously.
Write to Ed Frankl at edward.frankl@wsj.com
(END) Dow Jones Newswires
12-11-25 0518ET
