Despite a recent unexpected fall in inflation, the Swiss National Bank is likely to leave its key interest rate unchanged at 0% at its next monetary policy meeting on Dec. 11. Futures markets are not pricing in an interest rate cut this time and economists do not expect a return to negative interest rates in 2026 either.
In November, consumer prices fell by 0.2% month over month, pushing annual inflation down to 0%, as reported by the Federal Statistical Office on Dec. 3. Lower hotel prices, cheaper package holidays, falling car prices and declining vegetable prices all contributed to the drop in inflation.
“These are enough reasons for the SNB to maintain its current policy stance and not cut rates further at the meeting on Dec. 11.” says Karsten Junius, chief economist at J. Safra Sarasin.
David Kohl, chief economist at Julius Bär, says the SNB is “reserving negative interest rates for really bad times.”
The economists’ view is also reflected in the swap markets, which are not pricing in any significant interest rate cuts until autumn 2026. A return to negative territory is considered extremely unlikely.
The SNB surprised the markets with an interest rate cut in March 2024. It was one of the first central banks to lower its key interest rate – and the first major Western central bank to do so.
Switzerland Inflation Dynamics Explained
The SNB is likely to revise its inflation forecast for 2026 downwards from 0.5% to 0.4% in light of the latest inflation data. “However, we see no need for the SNB to revise its medium-term inflation expectations,” says Junius.
The current inflation data highlights a structural divide in inflation in Switzerland: While imported inflation is likely to remain negative, domestic inflation, which accounts for around 77% of the basket of goods, remains clearly in positive territory, Junius says.
The main reason for this is the strong Swiss franc, which has appreciated by around 4.9% in nominal terms, and 1.9% in real terms year over year. This is putting downward pressure on the prices of imported goods and weighing on both consumer and producer prices.
Globally, low energy prices and overcapacity in industry, particularly in China, are also helping to dampen price pressures. However, wage and service dynamics in Switzerland remain decisive for the SNB.
Junius expects solid wage growth, which will limit the risk of deflation in the medium term: “What is more important for the policy decision of the SNB is the development of domestic wages and services prices. Wage increases are expected to remain solid, which highlights, in our view, the low risk of deflationary developments over the medium term.
“We see evidence that the expansionary policy of the SNB is becoming increasingly effective. Credit growth and real estate prices are accelerating, and business surveys show tentative signs of a recovery in several sectors and in the labour market,” he adds.
This means that the current zero inflation is not a sign of deflation, but rather an expression of a balance between imported price declines and stable domestic price pressure. J. Safra Sarasin’s economist says this is a key argument against further interest rate cuts.
Will the SNB Intervene in the Currency Market?
Officially, the SNB remains prepared to intervene in the foreign exchange market, if necessary. Although the Swiss franc has remained largely stable against the euro recently, it has appreciated significantly against the US dollar. Junius says this is not a major problem for the central bank: “It makes little sense to weaken the Swiss franc further against a currency that is already overvalued, such as the dollar.”
Julius Bär’s Kohl says that the SNB would rather intervene in the foreign exchange market than return to negative interest rates. In addition, the export industry has largely adjusted to the exchange rate level.
Mortgages Remain Attractive Thanks to Low Interest Rates
In 2025, Swiss mortgage interest rates remained favorable across all terms. Swiss Average Rate Overnight or SARON mortgages benefit from low money market interest rates, with a SARON currently at -0.04%.
At the same time, fixed-rate mortgages have also become cheaper, according to Zürcher Kantonalbank. Ten-year terms are currently offered at around 1.88%, making them attractive for long-term property buyers.
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