Swiss National Bank holds at 0% as hike bets build

The Swiss National Bank left its benchmark rate at 0% on Thursday, diverging from the central banks of its biggest trading partners. The European Central Bank and the U.S. Federal Reserve have already raised rates this cycle; the Bank of Japan has moved as well. Canada and the U.K. are expected to follow later this year.

Swiss inflation ran at 0.8% in August, pushed up by fuel costs. It remains far below rates in the U.S. and the euro zone. The SNB targets inflation between 0% and 2%, while its main peers target 2%.

Traders are pricing the pause as temporary. They assign close to 50-50 odds of a hike versus a hold at the December meeting, and more than 90% odds that the SNB begins hiking by early 2027, according to LSEG data cited by CNBC. The same data set shows bets on the key rate reaching at least 0.75% by next September.

The franc's safe-haven status is one reason Swiss inflation stays low. A firm franc makes imported goods cheaper, and the SNB also monitors exchange rates in its task of maintaining "appropriate monetary conditions." A sudden or excessive appreciation would curb inflation and economic activity.

During the market volatility of 2025, the franc gained more than 12% against the dollar. The greenback has recovered about 4% of that move this year. The SNB has intervened in foreign exchange markets before and has signaled a willingness to do so again.

UBS had expected a first hike in June 2027. In a note earlier this month, its economists said the franc's decline, elevated oil prices and solid U.S. and euro zone economies raised the likelihood of an earlier move.

"Swiss franc depreciation of more than 2% against the euro and more than 1% against the US dollar since the last SNB meeting in June could increase concerns that inflation will accelerate more than previously anticipated," they said.

"Although we believe inflation is quite unlikely to exceed 2% over the next 12-18 months, the SNB has a history of surprising markets," they added.

Gedeon Tumong, head of finance specialization at Switzerland's HIM Business School, told CNBC the economy enjoys what some economists call a "safe haven dividend."

"Unlike the U.S., the U.K. and the euro zone, Switzerland imports credibility as much as it imports goods," he added. "Consequently, foreign capital inflows support the Swiss franc, the strong Swiss Franc by extension curbs imported inflation and low inflation provides enough arguments for the central bank to maintain lower rates than the Fed, the Bank of England or the European central Bank."

Tumong said the SNB maintains a "highly flexible monetary policy that actively boosts the Swiss Franc." When global energy and commodity prices spike, the franc's natural appreciation absorbs the shock, making imported goods cheaper for Swiss consumers, he said. Energy accounts for about 3.5% of Switzerland's inflation basket versus about 7% in the euro zone, and hydropower and nuclear power add to the insulation, he said.

He also pointed to Switzerland's fiscal debt brake, which requires balanced budgets. "The country does not force higher yields to attract bond investors. This would also account for lower rates," Tumong said.

Antonio Fatás, a professor of economics at INSEAD and an external consultant to the IMF, told CNBC that a history of low inflation keeps Swiss expectations low. At 0% nominal and 0.8% inflation, the real interest rate is near -0.8%, he said, close to the euro area's -0.7%. U.S. and U.K. real rates are slightly higher.

"So overall this is a story of low inflation that persists through the years and anchors the expectations of all economic players," he added.