The Swiss National Bank (SNB) is widely expected to keep its key interest rate at 0% when it meets on Sept. 24, according to analysts at ING. The call comes even after Switzerland's economy grew a stronger-than-expected 1.5% in the second quarter compared with the previous three months.
ING acknowledges the growth figure is a positive surprise and has raised its outlook for the next couple of years. But the bank argues that faster economic activity won't translate into higher prices. Inflation in Switzerland remains low, and domestically driven price pressures look contained.
Why growth isn't driving inflation
One reason is that Switzerland felt the global energy shock less intensely than many of its peers. That means there has been less lasting upward pressure on household bills and business costs. As a result, the usual link between a booming economy and rising prices is weaker in this case.
Another factor is the Swiss franc, which remains strong. A robust currency makes imports cheaper, helping to keep inflation in check. It also puts pressure on Swiss exporters, who find it harder to sell goods abroad when the franc is expensive relative to other currencies.
For the SNB, the strong franc is a double-edged sword. On one hand, it helps keep inflation low, which is what the central bank wants. On the other, it can hurt the export sector, which is a key part of Switzerland's economy. This is one reason the SNB has historically been cautious about raising rates too quickly.
What a hold means for investors
If the SNB keeps rates at 0%, it means borrowing costs in Switzerland stay very low. For everyday investors, that has a few implications. Savings accounts and short-term government bonds will continue to offer minimal returns, so investors may need to look further afield for income.
It also means the franc is likely to remain strong, which can affect anyone holding Swiss assets or planning to travel there. A strong franc makes Swiss goods and services more expensive for foreigners, but it also means Swiss investors can buy foreign assets at a discount.
The SNB's decision will also be watched by investors in other countries, especially those in Europe. Switzerland is not part of the European Union, but its economy is closely tied to the eurozone. A stable Swiss rate policy can provide a sense of calm in the region, even as other central banks, like the Bank of Japan, have been moving in the opposite direction.
Broader context: central banks diverge
The SNB's expected hold comes at a time when central banks around the world are taking very different paths. Some, like the Federal Reserve and the European Central Bank, have been raising rates to fight inflation. Others, like the Bank of Japan, have only recently started to tighten policy after years of ultra-low rates.
In this environment, Switzerland stands out as a country where inflation has been less of a problem. That's partly due to the strong franc and partly due to the country's energy mix, which relies more on hydroelectric power and less on imported fossil fuels. As a result, the SNB has more room to keep rates steady.
ING's view is that the SNB will stay on hold for now, but that doesn't mean it will never move. If inflation were to pick up unexpectedly, or if the franc were to weaken sharply, the central bank could reconsider. For now, though, the data points to patience.
What to watch next
Investors will be listening closely to the SNB's statement after the meeting for any hints about future moves. Key things to watch include the bank's updated inflation forecasts and any comments about the franc's level. If the SNB signals that it sees inflation risks building, that could change the picture.
Also worth watching is how the Swiss economy performs in the coming months. The 1.5% growth in the second quarter was a pleasant surprise, but it's just one quarter. If growth continues to outpace expectations, the SNB might eventually feel pressure to act, even if inflation remains low.
For now, ING's base case is clear: no change at the Sept. 24 meeting. That means Swiss interest rates stay at 0%, and investors should plan accordingly.
