Swiss National Bank flags economic uncertainty after latest rate cut

By John Revill

ZURICH (Reuters) -The Swiss National Bank cut its main interest rate to just above zero on Thursday and flagged increased uncertainty over the global impact of U.S. President Donald Trump's trade policies.

The SNB reduced its policy rate by a quarter point to 0.25%, its fifth successive cut since it started lowering borrowing costs in March 2024, after deciding inflation was well contained and could decline further.

The cut matched economists' forecasts, with markets now expecting rates to stay on hold for the time being as the SNB analyses the global economic situation where Chairman Martin Schlegel said uncertainties had increased "significantly."

The Swiss franc weakened slightly against both the euro and the dollar after the decision.

"The SNB was not only the first big central bank to have started cutting rates in this cycle, with this step today, it likely is also the first one to have finished cutting rates," said Karsten Junius, chief economist at Bank J. Safra Sarasin.

"The upward revisions of inflation profile indicate that no further rate cut is needed."

The decision came on a busy day for central banks, with the Bank of England and Sweden's central bank both keeping their key interest rate unchanged.

The U.S. Federal Reserve on Wednesday also held interest rates steady, citing a period of "unusually elevated" uncertainty linked to Trump's initial policies, including tariffs, which it said could both dampen growth and lead to price rises.

Schlegel said the outlook for Swiss inflation was also unclear, with the risks mainly pointing down due to weaker global economic growth and a possible rise in the value of the safe haven Swiss franc.

"There is a lot back and forth going on with economic and tariff policy at the moment," Schlegel told reporters.

"Many things are announced and then not introduced and then announced again. That makes weighing up the whole situation very difficult."

The new 0.25% rate is the SNB's lowest since September 2022, and brings it close to sub-zero interest rates again, a move it has previously not ruled out.

Schlegel was cautious about the SNB's future path, saying the bank would only decide its future policy after analysing data before its next meeting in June.

GROWTH UNCERTAINTY

The rate cut aims at preventing a further decline in Swiss inflation, which eased to 0.3% in February, its lowest level in nearly four years, and keeping it within the 0-2% target range which the central bank defines as price stability.

The SNB said that its baseline scenario anticipated moderate global growth over the coming quarters and gradually easing underlying inflationary pressure, particularly in Europe.

Still, the situation could change rapidly, with increasing trade barriers weakening global growth, while higher government spending could boost output in Europe, the bank said.

As well as using interest rates to control inflation, the SNB would also not refrain from using foreign currency interventions, despite being labelled a currency manipulator by the United States during Trump's first administration.

"Switzerland is not a currency manipulator," Schlegel said. "When we intervened in the fx market in the last decade it was because inflation was too low, and not to gain a competitive advantage for the Swiss economy."

The SNB kept its expectations for Swiss economic growth at between 1% and 1.5% for this year and forecast growth of about 1.5% in 2026, though SNB governing board member Petra Tschudin said the economic outlook for Switzerland was now "considerably more uncertain."

(Reporting by John Revill, additional reporting by Ariane LuthiEditing by Dave Graham and Tomasz Janowski)