Swiss National Bank keeps interest rate at zero, sees tariff hit to economy

By John Revill

ZURICH, Sept 25 (Reuters) - The Swiss National Bank held its benchmark interest rate at zero on Thursday, the lowest among major central banks, as it warned that U.S. President Donald Trump's tariffs had dimmed the outlook for the Swiss economy going into 2026.

The SNB's decision to keep its policy rate at 0% had been widely expected by markets and a Reuters poll, and was helped by a small uptick in inflation in recent months.

It was the first hold in seven meetings by the SNB, after it started reducing borrowing costs in March 2024.

The announcement was the SNB's first rate decision since Trump slapped a huge 39% tariff on Swiss goods exports to the United States in August.

The franc drifted lower against the euro EURCHF=, which was last up 0.1% at 0.9345 francs, while the dollar CHF= was up 0.13% at 0.796 francs.

ECONOMIC OUTLOOK HURT BY TARIFFS

The SNB said companies in the machinery and watchmaking sectors are particularly affected by tariffs but the impact on other industries - notably in services - has been limited. Overall, however, it said the outlook had deteriorated due to the U.S. levies.

"The U.S. tariffs present a major challenge... and are likely to dampen economic activity," Chairman Martin Schlegel told reporters.

The SNB now expects growth of just under 1% for 2026, down from its previous forecast for 1% to 1.5% growth. Unemployment would also rise, it said.

The government is trying to negotiate a lower tariff with Washington, with plans including buying more U.S. military equipment and liquefied natural gas.

NEGATIVE RATES NOT RULED OUT

Analysts also highlighted the Swiss franc's relative stability versus the euro as a reason to stay on hold.

"The main downside risk to the economy and inflation stems from U.S. trade policy and its impact on global growth to which a small open economy like Switzerland is very sensitive," said GianLuigi Mandruzzato, an economist at EFG Bank.

Mandruzzato said the impact of tariffs appeared to be "manageable" and several analysts predicted that the SNB would now leave its benchmark rate at zero as it anticipates a gradual increase in inflationary pressure.

SNB Chairman Martin Schlegel repeated his position that there are high hurdles to reintroducing negative rates, which sparked concerns from savers and pension funds when used from December 2014 to September 2022.

But the SNB is prepared to cut rates again if necessary, Schlegel told reporters.

Schlegel pointed to the bank's forecast for inflation to stay in its 0-2% target range in the coming quarters but said he was ready to act if inflation fell below target.

"Yes, we are prepared to cut further if it is required," Schlegel said. "But the bar to go negative is higher."

"We can have negative inflation prints in the short term, but in the medium term we need to achieve price stability," he said.

With inflation still low, however, Adrian Prettejohn, Europe economist at Capital Economics, forecast the SNB will lower rates again.

"We do not think that this is the end of the rate cutting cycle," he said. "We think that inflation is likely to average around zero next year, prompting the SNB to cut rates in the coming quarters to reduce the risk of deflation."