Switzerland experiences deflation, negative interest rates due to strong franc and global uncertainty.

From Morningstar: 2025-05-22 04:30:00

Switzerland faces deflation as investors seek safety amid geopolitical uncertainty, causing demand for Swiss assets to surge. The Swiss National Bank must navigate currency strength and deflation risks, with negative yields on government bonds. The upcoming SNB meeting on June 19 may see interest rates cut to 0%.

The Swiss franc has appreciated against the US dollar, surprising investors as the dollar weakens amid geopolitical stress. Economists predict further dollar weakness due to US economic slowdown. The SNB may need to cut interest rates to deter franc inflows, potentially leading to political consequences and accusations of currency manipulation.

April’s inflation data confirms Switzerland’s flirtation with deflation due to a strong franc, falling energy prices, and weakening domestic inflation dynamics. Despite strong GDP growth, the economy is cooling, with exports front-loaded ahead of tariffs. Swiss sovereign bond yields turn negative on speculation of looser monetary policy.

Swiss government bond yields fall below zero for short maturities, reflecting safe-haven demand. The SNB may cut rates to 0% in June, depending on external factors like the US trade dispute. Negative interest rates could return by September, with emergency interventions possible if financial conditions worsen.

The strong Swiss franc poses challenges for investors and Swiss companies, eroding returns and compressing profit margins. Swiss bonds offer diversification opportunities for investors seeking safety in a volatile global environment.



Read more at Morningstar: Switzerland Faces Deflation and Negative Interest Rates