Europe Returns to the Era of Zero Interest Rates! Swiss National Bank Warns of Intervention Against Strong Franc

TradingKey - While major central banks around the world remain hesitant about further rate cuts, the Swiss National Bank (SNB) has cut interest rates for the sixth consecutive meeting, pressured by deteriorating economic outlook and an abnormally strong Swiss franc. Its latest rate decision has brought zero interest rates back to Europe, with negative rates now a possibility by September.

On Thursday, June 19, the SNB lowered its policy interest rate by 25 basis points to 0%, in line with economists’ expectations. The central bank cited weaker-than-expected inflation data and a worsening economic outlook due to U.S. tariffs as reasons behind the move.

Swiss National Bank Policy Rate, Source: Trading Economics

Earlier this month, data showed that Switzerland’s May Consumer Price Index (CPI) fell 0.1% year-on-year, marking the first negative print since early 2021.

This decision brings the European monetary environment back to the unusual edge seen before the pandemic, when central banks in Switzerland, Sweden, and Denmark all implemented negative interest rate policies.

Following the meeting, SNB Chairman Martin Schlegel said borrowing costs in Switzerland are approaching negative territory and further rate cuts cannot be ruled out — though the central bank would not easily commit to such a policy. 

Markets now expect the SNB to cut another 25 basis points in September, potentially ushering Europe back into the era of negative interest rates.

Schlegel acknowledged that policymakers are aware of the undesirable side effects of negative rates, noting that ultra-low rates pose challenges to depositors and pension funds, and create difficulties across many parts of the economy.

Strong Swiss Franc Adds Pressure

In addition to uncertainty from U.S. trade policy, the persistent appreciation of the Swiss franc has been a key factor driving the SNB’s easing stance. So far in 2025, the Swiss franc has gained over 10% against the U.S. dollar, with USD/CHF currently trading at 0.81675.

USD/CHF in 2025, Source: TradingKey

Because oil is priced in U.S. dollars, a stronger franc lowers the cost of imported crude oil for Switzerland — further dampening inflation prospects.

The SNB indicated that it may intervene in foreign exchange markets if necessary, although it did not engage in large-scale interventions last year.

However, any potential intervention could risk being labeled as currency manipulation by the United States, as occurred during Trump’s first term. Currently, Switzerland remains on the U.S. Treasury’s list of economies under currency policy monitoring.