Why Did Swiss Central Bank Cut Down Interest Rate To 0%?

Swiss Central Bank cut down its benchmark interest rate by 0.25% to 0% yesterday. The central bank did this to control the appreciation in Swiss franc and restrain the rising deflation in the Swiss economy. Deflation in the Swiss economy was 0.1% in May. The target inflation rate of the Swiss central bank is in the range of 0% to 2%.

Swiss Franc Has Appreciated By More Than 11% Year-To-Date In 2025

Deflation means decline in prices or negative inflation. One reason for this decline is the continued appreciation in Swiss franc. This appreciation has reduced the prices of imports of Switzerland. This in turn is causing prices to go down. Swiss franc is considered to be a safe haven currency. The increase in trade uncertainty and geopolitical risks has caused the Swiss currency to appreciate since the start of the year. Swiss franc has appreciated by more than 11% against the US dollar since the start of 2025.

Negative Interest Rate Only As A Last Measure, Says Central Bank

Deflation is also bad for an economy. Deflation can cause profits of businesses to go down. This in turn can cause increase in unemployment and slowing down of demand. The Swiss central bank also did not rule out the possibility of cutting down its benchmark interest rate further to negative levels. But it added that negative interest rates cause a lot of inconvenience for banks, savers etc. and it would only take this step if there is absolute need for it. It would not take down interest rate to negative territory, lightly.

Norway Central Bank Surprises Markets With Interest Rate Cut

In another move yesterday, Norges Bank, the central bank of Norway surprised the markets by going for an unexpected 0.25% interest rate cut. It lowered its benchmark interest rate from 4.5% to 4.25%. Central banks cut interest rates when they want to give a boost to a slowing economy.

European equity markets ended the day in red after these rate cuts. Euro Stoxx 50 ended the day, down by 69.88 points or 1.33%.

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Source: Swiss Central Bank