Switzerland faces deflation and pressure to manage strong currency, with potential interest rate cuts

From Morningstar: 2025-05-21 12:20:00

Switzerland is facing deflation as demand for Swiss assets surges due to global market volatility, with negative yields on two-year government bonds expected.

The Swiss National Bank faces the challenge of managing currency strength and deflation as imports become cheaper, potentially leading to interest rate cuts.

The Swiss franc has appreciated against the US dollar, prompting concerns of deflation and potential negative interest rates in Switzerland.

Switzerland could be labeled a currency manipulator by the US due to its large trade surplus, with potential political and economic consequences.

Switzerland’s inflation data for April indicates a risk of deflation, driven by falling energy prices and a strong franc reducing import costs.

Yields on Swiss government bonds have turned negative for short maturities, reflecting safe-haven demand and speculation of looser monetary policy.

The SNB may cut rates to 0% in June due to external factors affecting the franc, with negative rates possibly returning by September.

The strong Swiss franc may erode returns for investors in other currencies and impact Swiss companies’ profit margins, but Swiss bonds offer diversification opportunities.



Read more at Morningstar: Safe-Haven Status Heaps Pressure on Swiss National Bank