The Swiss National Bank (SNB) President, Martin Schlegel, stated that reintroducing negative interest rates comes with a high threshold due to their adverse effects on savers and pension funds. He mentioned that, with the policy rate currently at zero, the bank is cautious about further easing measures and would consider negative rates only in exceptional situations while observing impacts from US tariffs and domestic inflation.
In June, the SNB lowered rates to zero, continuing from reductions that started in March 2024. Market expectations suggest that the policy will remain unchanged until at least 2026, with inflation slightly positive and aligning with the bank’s forecasts. Schlegel defended the initial aggressive rate cuts, arguing they helped avoid more severe measures, yet acknowledged the limited capacity it leaves the SNB to counteract effects from Trump’s tariff policies.
Swiss Franc Stability
With the Swiss National Bank signaling a strong reluctance to reintroduce negative interest rates, we see limited downside for the Swiss franc in the coming weeks. President Schlegel’s comments effectively put a floor under the policy rate at zero, barring a severe economic crisis. This stability suggests that implied volatility in franc options is likely to remain subdued, making strategies that profit from low volatility, such as selling strangles on EUR/CHF, look appealing.
This view is reinforced by the latest economic data we’ve seen. The August CPI figures released last week showed inflation holding at just 0.8% year-over-year, well within the bank’s comfort zone and providing no pressure for a rate hike. Combined with the sluggish Q2 GDP growth of 0.3%, the SNB has little incentive to move rates in either direction, anchoring short-term interest rate futures.
Potential Risks and Market Reactions
The main risk to this stable outlook remains the potential for new U.S. tariffs, which could hit Swiss exports hard. We are closely watching the White House’s review of tariffs on Swiss watches and pharmaceuticals, which could trigger a flight-to-safety rally in the franc. For traders, this means that while selling short-term volatility seems attractive, holding some cheap, longer-dated call options on CHF could be a prudent hedge against this specific political risk.
Looking back at the rate cuts that began in March 2024, we saw how decisive SNB action could weaken the franc, but that momentum has clearly stalled since the move to zero in June of this year. Current market pricing, reflected in SARON futures, shows virtually no expectation of a rate change until well into 2026. This widespread consensus suggests any surprise, especially a hawkish hint, could cause an outsized market reaction.
