On 19 June 2025, the Swiss National Bank (SNB) will announce its next policy rate verdict. Many experts foresee a reduction from the current 0.25 percent to 0 percent and even consider a negative rate this year plausible.

I believe another cut would be misguided. For the following reasons, a higher policy rate is warranted:

1. Not in Switzerland’s Economic Interest

The marginal productivity of capital in Switzerland is likely between 2 and 3 percent per year. If the policy rate were lowered to 0 percent, firms struggling to earn a 3 percent return would receive even more state support.

That is not in the country’s interest. On the contrary, it breeds «zombie» companies that tie up resources without real market success. Such firms should not be subsidized.

2. Political Dependence on the EU

The Swiss franc has been too weak for years. Currency-weakening interventions have produced an outsized foreign-exchange hoard, making Switzerland economically – and above all politically – dependent on the EU.

In a crisis, the SNB could not sell European bonds without facing massive EU protests and might have to align its monetary policy with EU-friendly politics.

3. Undesirable Redistribution

An overly weak franc shifts income from households to the owners of export firms (in large companies, predominantly foreigners).

If the trade-weighted foreign currency is 5 percentage points too high – i.e., the franc is that much too low – more than 1 percent of disposable household income is quickly being redistributed.

4. Skilled-Labour Shortage and Its Consequences

In recent years, the SNB has been the biggest driver of firms and workers migrating to Switzerland.

Its policy has significantly fueled EU immigration, muted real per-capita income growth, and aggravated the skilled-labour shortage, with all the knock-on effects.

5. Excessively Expansionary Monetary Policy

Imported inflation will run at about -2.5 percent this year, mainly due to falling oil prices and a weakened franc. Domestic inflation may show roughly 1 percent.

A broader measure of domestic inflation – accounting for mounting bottlenecks – would likely be 3 to 4 percent. Given that, today’s highly expansionary stance is inappropriate.

6. Pension Funds under Strain

Years of very low, sometimes negative, interest rates have left pension funds in a difficult position.

With acceptable risk, it has been almost impossible to earn returns that secure an adequate conversion rate.

My Conclusion

It would not harm the economy if imported inflation were -4 percent while domestic inflation ran at 1 to 2 percent per year. Contrary to SNB claims, that is not deflationary.

Under such conditions, Switzerland would fare much better in the short, medium, and long term – and the US would stop accusing us of currency manipulation.

Martin C. Janssen taught economics and financial-market economics for more than 50 years at the University of Zurich, the University of St. Gallen (HSG), ETH Zurich, and other institutions at home and abroad. He retired in 2013 but continued teaching regularly until 2021. In 1986, he founded Ecofin, a Zurich-based advisory and asset-management firm that has evolved into a group of small companies.