The Swiss National Bank left its policy rate unchanged at 0% on Thursday, keeping the lowest rate among major central banks even as it raised its inflation forecast for the coming years.
The decision matched expectations exactly: all 35 economists in a Reuters poll published Monday had predicted the hold. It extends a long run of unchanged decisions, and the statement stuck closely to the language of the June assessment. Banks’ sight deposits at the SNB will still be remunerated at the policy rate up to a threshold, with the discount for deposits above it unchanged at 0.25 percentage points.
What changed was the forecast. The SNB now expects average annual inflation of 0.7% for 2026, 0.8% for 2027 and 0.8% for 2028, up from the 0.6%, 0.6% and 0.7% it projected in June. Consumer inflation rose from 0.6% in May to 0.8% in August, driven mainly by goods inflation, which turned positive in August for the first time since May 2024. The bank attributed the rise primarily to higher prices for oil products, a direct consequence of the Middle East conflict pushing energy costs across the board.
According to the conditional inflation forecast, inflation will keep rising somewhat in the fourth quarter before easing over the course of 2027 as energy inflation, currently significantly elevated, retreats. The forecast remains within the range the bank defines as price stability over the entire horizon, and it assumes the policy rate stays at 0% throughout. The bank noted that the medium-term forecast is slightly higher than in June, reflecting among other things the weakening of the Swiss franc.
| Measure | June forecast | September forecast |
|---|---|---|
| Inflation 2026 | 0.6% | 0.7% |
| Inflation 2027 | 0.6% | 0.8% |
| Inflation 2028 | 0.7% | 0.8% |
| GDP growth 2026 | around 1% | 1.5% to 2% |
| GDP growth 2027 | around 1.5% | around 1.5% |
A strong quarter and a weaker franc
The growth picture improved noticeably. Swiss GDP growth was exceptionally strong in the second quarter, and the SNB now expects growth of between 1.5% and 2% for 2026 as a whole, well above the roughly 1% it projected in June. Monetary policy and the recent depreciation of the Swiss franc are having a supportive effect, the bank said. Moderate growth is expected for the coming quarters, with 2027 growth still seen around 1.5%.
The franc’s softening cuts both ways. A weaker currency imports inflation, which is part of why the medium-term forecast is higher than in June. It also relieves some of the pressure that a strong franc puts on exporters, which had been a persistent drag through the earlier phase of the Middle East conflict. The SNB said it remains willing to be active in the foreign exchange market as necessary to ensure appropriate monetary conditions, the same standing offer it has made at every assessment this year. In practice the bank has tolerated considerable currency strength without intervening, and traders watch its language for any shift in that tolerance.
The second-quarter growth surge deserves some caution. Much of it reflects the same forces the bank is now forecasting will fade: energy exports and re-export activity linked to the conflict, plus domestic demand that held up better than expected. If energy prices retreat as the forecast assumes, some of that momentum goes with them. The SNB’s own growth range for 2026 already assumes a slower second half, and the bank expects only moderate growth in the quarters immediately ahead.
The Middle East remains the wildcard
The SNB repeated that the main risk to the outlook comes from the global economy, above all the situation in the Middle East. Energy prices could turn out significantly higher than expected, which would lift inflation further and curb economic growth. The trade policy environment and exchange rate developments also remain sources of uncertainty. The baseline scenario is subject to high uncertainty for those reasons, the bank said.
Chairman Martin Schlegel has spent much of the year pushing back on speculation about negative rates, calling their side effects undesirable and setting a high bar for returning below zero. Switzerland used negative rates from December 2014 until September 2022, a period that angered savers and pension funds, and the bank has shown no appetite for going back. With inflation still well inside the 0% to 2% target range, Thursday’s hold was never in doubt.
The more interesting question is the other direction. Markets have started betting that Switzerland cannot avoid the global hiking cycle much longer, given that the Federal Reserve has signaled hikes and the European Central Bank has stopped cutting. Swiss inflation momentum picked up in August, and quarterly economic growth hit its fastest pace in nearly five years. Several banks now see the first SNB hike arriving earlier than the 2027 or 2028 dates that were consensus at midyear, though the SNB’s own forecast horizon still assumes zero rates throughout.
For now the SNB is content to diverge from its peers. Switzerland’s inflation problem is mild compared with the energy-driven price pressures elsewhere, and the bank has room to wait. The franc, still a safe haven in stressed markets, complicates any tightening decision because a hike would pull the currency up and squeeze exporters. The next quarterly assessment comes in December, when the fourth-quarter inflation bump the bank is forecasting should be visible in the data and the Middle East situation should be clearer.