Negative Swiss Rates Send a Warning to Europe
Policymakers need to stay alert to the risk of deflation reappearing.
The Swiss National Bank is edging closer to implementing negative interest rates as it attempts to stave off deflation.
Photographer: Fabrice Coffrini/AFP/Getty images
As economists debate whether trade wars will stoke inflation as companies raise prices or produce disinflation by crimping growth, one country is already contending with the consequences of slowing inflation. Switzerland’s annual rate dipped to minus 0.1% in May, which is likely to prompt the Swiss National Bank to cut its official policy rate by 25 basis points to zero at its June 19 meeting — with further cuts into negative territory a distinct possibility.
The central bank has been clear about its determination to counteract the relentless appreciation of the Swiss franc — especially to the euro, the currency of the big economic zone that surrounds Switzerland. The US Treasury in its semi-annual review released Thursday, added Switzerland to its list of nine countries it monitors closely over foreign-exchange practices, but stopped short of accusing it of currency manipulation. SNB President Martin Schlegel has said that negative borrowing costs — which were in place from 2015 to 2022 — are an option, although “no one likes” them. A monetary policy move below zero could come as soon as September, according to Bloomberg Intelligence.