The Swiss National Bank has cut its key interest rate by 0.25% to zero. This return to zero interest rates is reminiscent of the 2009 financial crisis when interest rates were already set at zero. They were lowered to -0.75% to weaken the Swiss franc and boost inflation.
These same objectives are now prompting the Swiss monetary authorities to reduce the key interest rate to its lowest since September 2022.
Inflation is negative again
With numerous international tensions, the Swiss franc, the ultimate haven currency, has appreciated significantly on the foreign exchange market, particularly against the US dollar.
This automatically reduces the cost of imports and consequently eases inflationary pressures. In May, Swiss inflation turned negative (-0.1%) for the first time in more than four years.
Increased international confidence
There is no guarantee that a zero-key interest rate will be enough to divert international investors seeking security away from the Swiss franc. Even offering zero returns, the Swiss currency appears to be the only true safe-haven currency.
This is a status that the US dollar has lost with Trump's controversial policies and that the Japanese yen is struggling to assume amid concerns about Japan's enormous public debt.
Cut rate should not be enough
The 0.25% cut in the Swiss key interest rate is likely insufficient to halt the franc's appreciation, especially as key interest rates are also falling in other countries. Thirty minutes after the Swiss decision, the Norwegian key interest rate was reduced by 0.25%, and the Swedish rate was reduced the day before.
In concrete terms, the franc's strength is increasingly becoming a problem for the Swiss economy, particularly for Swiss companies operating abroad. This market could be an option to reduce volatility, but our preference lies elsewhere for now.
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