SNB Holds Fire as Switzerland Wonders About Deflation Once Again

The Swiss National Bank (SNB) is set to make its key policy rate decision later today, but economists are not expecting any changes. The unanimous call among economists surveyed by Reuters is for the SNB to leave its interest rate at 0%, which has been in place since 2024.

However, while inflation may seem like a pressing concern, the latest data shows that Swiss inflation jumped to 0.8% in August, but most of this increase came from energy prices. Core inflation remains stable at 0.4%, and when considering the SNB's definition of price stability as an inflation rate between 0% and 2%, the current figure holds comfortably within that range.

The Swiss franc has been a major concern for the SNB in the past, acting as a natural inflation buffer due to its strength relative to other currencies. The central bank has acknowledged that the currency's appreciation slows down inflation, making imports cheaper.

The SNB may still intervene against excessive franc appreciation if disinflation returns, and negative interest rates should not be ruled out either. Policymakers have been reluctant to return to unconventional monetary policy due to its potential side effects, but they may eventually find themselves with little other options left.