Swiss National Bank board member Petra Tschudin addressed Swiss inflation data, noting the decrease to the lowest level since COVID. Consumer prices dropped by 0.1% year-on-year in May, yet the bank remains focused on medium-term goals.

Markets currently predict a 70% likelihood of a 25 basis point rate reduction at the SNB’s forthcoming meeting on June 19, lowering the rate from 0.25% to zero. There is a 30% probability of returning to a negative rate of -0.25%. This negative inflation primarily stems from the strong Swiss franc impacting imported goods’ prices.

SNB Leadership’s Perspective

SNB Chair Martin Schlegel acknowledged the expectation of occasional negative data. He indicated that individual months with such data do not always necessitate an immediate response from the bank.

What we’ve seen so far reflects a deliberate pace in how policymakers are digesting recent shifts in price levels. The drop in consumer prices, while not wholly unexpected given the volatile nature of foreign exchange pressures, has sharpened focus on imported inflation. The franc’s strength, while beneficial for purchasing goods abroad more affordably, has also weighed on the domestic price picture, easing overall inflation without necessarily pointing to soft demand within the country.

Tschudin’s remarks reinforce the idea that targets further out on the horizon matter more than monthly fluctuations. Minor declines like May’s do not compel an abrupt change in direction, especially when those changes can often unwind just as quickly. Instead, they’ve reiterated confidence in a gradual, measured path—keeping medium-term inflation expectations steady guides their decision-making more than spot readings.

From a trading standpoint, the reaction of the money markets speaks volumes. The fact that odds lean heavily toward a modest rate cut indicates investors are reading the SNB’s posture as still supportive of easing, provided the data remains subdued. The 30% chance given to a move below the zero threshold is not negligible either. There’s some expectation building—not consensus, but a noticeable undercurrent—that the SNB could be compelled to revisit negative territory if disinflation persists more broadly.

Implications for Future Policy

Schlegel struck a careful tone, effectively reminding us not to hang policy expectations solely on one soft print. This implies a preference to wait for corroborating trends, rather than responding reflexively. It also suggests the forthcoming decision may stay within the expected confines unless a series of reinforcing data points suggests something more sustained. One weak month is not a pattern, and policy won’t shift purely in response to headline grabbing statistics.

Looking out at the next two weeks, we think volatility is likely to pick up around the policy meeting, especially if forward guidance signals more than a one-off adjustment. For those of us managing exposure, it would be wise to consider scenarios where Swiss rates test the lower bound again. The range of potential outcomes has widened slightly, but remains anchored by that central scenario—a quarter-point reduction.

Given the SNB’s methodical track record and their tendency to signal intentions subtly, the market will likely dissect language more than the move itself. That’s where attention needs to lie—in how they characterise inflation drivers, whether they distinguish energy or exchange rate related effects, and how persistent they think these are. That language will filter quickly into forward pricing structures, and adjustment at that level can happen faster than many anticipate. We should be ready to recalibrate once the tone and detail of their assessment are known.

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