Deflation in Switzerland: Is SNB in ​​the interest trap?

Deflation in Switzerland: Is SNB in ​​the interest trap?

Inflation in Switzerland achieved a historically negative value of minus 0.1 percent in May 2025, which has been the first negative inflation value since March 2021. Inflation was 0.0 percent as early as April 2025, and the development is due to falling energy prices and a declining rental inflation. The highest inflation value since Corona pandemic was recorded in the summer of 2022 with 3.5 percent, while inflation has been consistently below 1 percent since September 2024. Experts predict an average inflation of 0.2 to 0.3 percent for the current year. ZKB expert David Marmet even expects a slightly negative inflation in the coming months. The Swiss National Bank (SNB) is thus faced with a challenge, since deflation can endanger demand, as https://www.vol.at/deflation-in-der-schweiz-ist-zurueck/9450527)

The SNB recently reduced the key interest rate by 25 basis points to 0.25 percent, a decision that will come into force from Friday. This interest rate reduction came in a context in which inflation has fallen from 0.7 percent to 0.3 percent since the last interest decision. The franc remained stable compared to the euro, since the interest rate reduction was already expected. In a moderate economic climate, SNB sees increasingly downward risks for inflation, which influenced its decision to reduce the key interest rate. Experts had expected such interest reduction, which could prove to be positive for mortgageers because the falling interest rates make loans more attractive. These relevant developments were shown by [20 minutes.

challenges for the SNB

With regard to the future, SNB President Martin Schlegel emphasizes that the monthly inflation values ​​develop unnoticed. In the coming months, a further reduction of the key interest rate from 0.25 to 0.0 percent is expected at the next SNB meeting. Nevertheless, there are experts, such as Thomas Gitzel from VP Bank, who assume that the SNB will stick to zero interest. These uncertainties in monetary policy are further reinforced by the current situation on the market, while inflation remains under pressure and there are slight climbs in sight, influenced by investments in the EU NZZ is forecast.

Analysts wonder whether the SNB has to return to negative interest rates in the near future to prevent further deflation. Most recently, inflation was –0.1 percent compared to the previous year, and the core inflation value increased by 0.5 percent, which increases the discussion about a possible return to negative interest rates. At the same time, the growth of gross domestic product in Switzerland remains at 1.1 percent, which indicates an overall solid economic basis, albeit in a fluctuating international market.