Published by Global Banking and Finance Review
Posted on March 17, 2025
By Indradip Ghosh
BENGALURU - The Swiss National Bank will cut its main policy rate by a quarter percentage point on March 20 to 0.25% and hold it there until at least 2026, according to most economists polled by Reuters, who also said the risk of the rate turning negative again was low.
Since the SNB's surprise 50 basis point rate cut in December, inflation has declined further toward the lower bound of the central bank's target range of 0-2%, hitting a near four-year low of 0.3% in February and leaving the door open for another cut.
However, persistent Swiss franc weakness could reignite price pressures in the near term. Rising optimism around euro zone growth prospects thanks to an expected infrastructure and defence spending boom in Germany has boosted the euro.
The common currency hit a more than six-month high of 0.9662 against the franc on Friday after German Chancellor-in-waiting Friedrich Merz reached an agreement with the Greens on a historic debt deal.
A near 90% majority of economists, 28 of 32, in a March 12-17 Reuters survey predicted the SNB will cut its key interest rate by 25 bps on Thursday to 0.25%. The rest expected no move.
"Current conditions suggest that another rate cut would support the nascent improvement in growth momentum and would be useful to anchor the medium-term inflation rate closer to 1%," said Karsten Junius, chief economist at J. Safra Sarasin.
"However, stronger growth in the euro area usually leads to a stronger euro and a higher demand for Swiss exports...We consider risks of a recession or deflation as rather low. Zero or even negative interest rates are therefore not necessary."
Nearly 60% of forecasters, 19 of 32, said rates would still be at 0.25% by year-end. Ten said they would fall to 0% and three expected them to remain at the current 0.50%.
Swiss inflation, currently the lowest among G10 economies, is forecast to average 0.6% in 2025 and 0.8% in 2026.
The U.S.-led trade war, which Switzerland has mostly avoided so far, may have an impact on inflation but the direction is unclear.
The Swiss economy is predicted to grow at a steady 1.3% pace this year and 1.5% next, poll medians showed.
In response to an additional question, all but two of 15 economists said the risk of negative rates was low.
"Previously there had appeared to be a reasonable chance of the SNB cutting to zero or below, but those chances now look slim," said Adrian Prettejohn, Europe economist at Capital Economics.
"Recent fiscal announcements by the European Union and Germany, which have pushed up German bond yields, (mean) the SNB can maintain a larger rate differential without needing to resort to further interest rate cuts."
Markets are currently pricing in two more European Central Bank rate cuts this year.
(Other stories from the Reuters global economic poll)
(Reporting by Indradip Ghosh; Polling by Sarupya Ganguly; Editing by Ross Finley, Kirsten Donovan)
