On Thursday, the SNB decided to lower its key interest rate to 0.25 percent. The central bank stated in its communiqué that this step ensures that monetary conditions remain «appropriate given the weak inflationary pressure and the heightened downside risks to inflation.»

The most important indicator for the future direction of monetary policy, the inflation forecast, differs only slightly from the projection presented by the SNB during its last monetary policy assessment in December 2024. The average annual inflation rate is expected to be 0,4 percent in 2025 and 0,8 percent in both 2026 and 2027. In December, the projections were 0,3 percent for 2025 and 0,8 percent for 2026, while the 2027 figure had only three quarterly estimates, suggesting a yearly rate of 0,7 percent. Thus, inflation would remain within the 0 to 2 percent range that the SNB equates with price stability.

Downside Risks Prevail

For the current year, the SNB maintains its December forecast of GDP growth between 1 and 1,5 percent. For 2026, a GDP increase of 1,5 percent is projected.

At the press conference, the SNB’s Governing Board—comprising President Martin Schlegel, Vice President Antoine Martin, and board member Petra Tschudin—explained the reasons behind the continued easing of monetary policy. They emphasized that global trade and geopolitical uncertainties have increased, making Switzerland’s economic outlook significantly more uncertain. Consequently, the inflation outlook (and by extension, the accuracy of inflation forecasts) is currently «very uncertain.» However, the downside risks to inflation remain predominant.

Correct Inflation Assessment by the Governing Board – So Far

A psychologically significant factor may be that the inflation assessment made by the Governing Board in December—its first in its new composition—has proven to be accurate. «Inflation has developed as expected since the last assessment,» Schlegel noted.

As in December, he avoided any indication regarding the future direction of monetary policy, refraining from providing forward guidance. However, he hinted at a certain asymmetry in the SNB’s approach. If inflationary risks were to become more pronounced, monetary policy could relatively easily tighten again by raising interest rates or selling foreign exchange reserves to curb price pressures and ensure price stability.

Reduced Likelihood of Negative Interest Rates?

The newly announced interest rate cut provides an expansionary economic stimulus and, according to Schlegel, reduces the likelihood that the SNB will have to resort to the unpopular instrument of negative interest rates again. «Waiting has no benefit in monetary policy,» he stated.

When asked about the trade conflict initiated by the U.S. and the fiscal policy shift in Germany and Europe, Schlegel acknowledged that it is difficult to assess the future impact on Switzerland at this stage.

Tight-Lipped on U.S. Treasuries

Schlegel was equally reserved regarding speculation about a possible «Mar-a-Lago Accord»—a theoretical agreement under U.S. pressure in which foreign holders of U.S. Treasury bonds would contribute to keeping both the dollar exchange rate and U.S. debt servicing costs low. The SNB holds substantial U.S. Treasury assets but does not disclose their exact amount separately. Schlegel stated that the SNB is closely monitoring developments, while Martin added that the bank continuously evaluates the appropriate composition of its foreign currency investments, considering liquidity and security.

Schlegel was also prepared for questions about why long-term bond yields have barely reacted to recent rate cuts—or have even risen. He explained that, in addition to short-term interest rates, numerous other factors influence long-term yields. He also mentioned the international interest rate context, meaning that Switzerland cannot entirely decouple from monetary developments in other currency areas. «We always take the entire interest rate structure into account in our monetary policy decisions,» he said.

Weak Swiss Franc and High Gold Prices – A Contradiction?

Schlegel delegated the topic of the weakening Swiss franc to his colleague. Why has the franc not strengthened despite high global uncertainties? Tschudin argued that financial markets remain relatively optimistic and stable. This assessment appears valid, particularly concerning stock markets in Europe.

However, this does not align with the development of gold prices. The long-standing gold rally could be interpreted as an indicator of significant underlying skepticism among market participants. From this perspective, gold serves as insurance against an extreme scenario—such as a financial market collapse or even the breakdown of the financial and monetary system. The rapid and substantial increase in the «insurance premium» (i.e., the gold price) suggests that market participants perceive an increasing probability of such an extreme scenario.

As the holder of (still) 1,040 tons of gold, the SNB is undoubtedly keeping a close eye on the precious metal's price trends.