Switzerland’s central bank announced on Thursday it was cutting its interest rate from 0.25 to 0 percent. What impact will this decision have on the country’s consumers?
In a press release published on June 19th, the Swiss National Bank (SNB) explained that the move was intended to “counter the lower inflationary pressure.”
The move is aimed at taming the Swiss franc, a safe haven that has soared against the dollar since President Donald Trump launched his tariff onslaught in April.
It also comes as consumer price increases have eased in Switzerland.
The SNB added that it “will continue to monitor the situation closely and adjust its monetary policy if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term.”
What this means, according to Philipp Burckhardt, a fixed income strategist and portfolio manager at Lombard Odier bank, is that “the franc is too attractive in the current environment, partly because of the country’s stability,” he told the news portal 20 Minutes.
“The SNB wants to prevent negative inflation at all costs. To do this, it must significantly lower interest rates,” he pointed out.
How will this move impact Switzerland’s consumers?
Let’s look at rents first — will they drop?
In Switzerland, rents are based on the so-called reference interest rate.
This is an average of all interest paid on mortgages in Switzerland. These, in turn, are based on the SNB’s key interest rate.
However, a change in rent rates following an interest rate cut, as is currently the case, does not occur overnight.
That’s because long-term fixed-rate mortgages are also included in the calculation, so the reference interest rate ‘behaves’ sluggishly and it takes time for it to rise or fall.
The reference interest rate was already lowered to 1.5 percent in March, but a further reduction for 2025 is not ruled out.
Advertisement
What about mortgages?
In general, lower interest rates also mean lower mortgage rates.
However, much depends on the type of mortgage homeowners or potential buyers have or are seeking, because interest rates on longer-term mortgages react differently than those with shorter terms.
SARON mortgages, for example, will benefit immediately from further interest rate cuts.
It is important to note, though, that not all mortgages are affected equally or at the same time.
Long-term fixed-rate mortgages, for example, are only adjusted to the new interest rates when they expire and are then renewed.
Advertisement
How will your money in the Swiss bank be affected?
Unfortunately, if you have savings or other accounts, falling interest rates are bad news: your assets will not generate any profits.
Last but not least: what about Switzerland’s famously strong and resilient currency?
It will remain strong and resilient, at least for now.
“The franc will continues to appreciate,” Burckhardt said.
While this is not a positive development for Switzerland’s export-oriented companies, as their products will become even more expensive in foreign countries, it is definitely good news for consumers.
That’s because travelling or shopping abroad will become even cheaper.
Unemployment to rise amid uncertain economic outlook
The SNB said unemployment was likely to continue to rise slightly.
“The global economic outlook for the coming quarters has deteriorated due to the increase in trade tensions,” the bank said.
“The economic outlook for Switzerland remains uncertain. Developments abroad continue to represent the main risk.”
