Swiss National Bank Signals Hold on Negative Interest Rates, Opting for 'Lesser Evil' Strategy

The Swiss National Bank (SNB) has confirmed it will keep its main policy rate at -0.75% in its latest monetary policy meeting, marking the latest move in a prolonged effort to manage currency strength and inflation. Despite inflation remaining above the 2% target at 2.8% in November, the central bank chose not to further lower rates, issuing a statement emphasizing the risks of a stronger franc to export competitiveness and financial market stability. The decision reflects a strategic pivot toward what officials described as a 'lesser evil'—maintaining negative rates to prevent excessive currency appreciation while avoiding a deeper rate cut that could trigger capital flight or asset bubbles. The SNB noted that foreign exchange interventions have been active, with net sales of CHF totaling 12.4 billion Swiss francs in the third quarter of 2025, underscoring persistent pressure on the franc’s value. Market participants reacted cautiously, with the Swiss franc rising 0.6% against the euro and 0.9% against the dollar in early trading following the announcement. The Swiss 10-year government bond yield edged up to -0.12%, reflecting expectations of continued negative rates. Financial institutions and exporters are closely watching the SNB’s stance, as a stronger currency continues to squeeze margins across the manufacturing and services sectors. The SNB’s approach sets it apart from major central banks, including the U.S. Federal Reserve and the European Central Bank, which are either pausing or preparing to cut rates. Switzerland’s unique economic structure—driven by finance, high-end manufacturing, and a reliance on exports—makes it particularly sensitive to exchange rate volatility. The central bank reiterated that rate adjustments will be data-dependent and signaled that a rate hike remains off the table for now.