Switzerland’s record-low inflation is driven by firmly anchored expectations and the structure of the Swiss consumer price basket, Swiss National Bank (SNB) Governing Board member Petra Tschudin said on Friday.
Tschudin, who joined the SNB’s board in October 2024, noted that the central bank’s 0-2% medium-term inflation target has been consistently met, reflecting stable price dynamics. The composition of Switzerland’s CPI, where energy products account for just 2% of the basket, limits the pass-through of volatile oil and gas prices to headline inflation compared with other economies.
The SNB’s conditional inflation forecast, which assumes unchanged policy rates, does not imply a specific path for future interest rates, Tschudin emphasized. Policy adjustments will be made in response to new inflation data. While negative rates remain a viable tool, transmission in a sub-zero environment differs from positive-rate settings. Banks cannot reduce deposit rates indefinitely, constraining the pass-through to lending rates. "If it becomes necessary to lower rates below zero to keep inflation between 0% and 2% over the medium term, we will do so," she said.
The Swiss franc is not the primary instrument of monetary policy despite the current 0% policy rate, Tschudin added. The SNB’s key lever remains the policy rate, which influences domestic financing costs and the exchange rate. Recent franc weakness reflects stronger foreign inflation dynamics, particularly in energy prices, which have driven up interest rate expectations and boosted demand for other currencies.
On currency interventions, Tschudin said the SNB evaluates whether exchange rate movements threaten price stability. Decisions hinge on whether a move materially alters the inflation outlook or undermines the central bank’s mandate. The inclusion of Switzerland on the U.S. Treasury’s monitoring list for potential currency manipulation does not restrict the SNB’s operational independence, she noted.
