Benign inflation keeps Swiss National Bank on hold

Inflation remains under control

At its June meeting, the SNB struck a relaxed tone on inflation. After rising from 0.1% in February to 0.6% in May, inflation in Switzerland remains comfortably within the SNB’s target range of 0–2%.

Energy prices have of course increased in Switzerland, as elsewhere (+17.7% year-on-year for petroleum products). However, the strength of the Swiss franc continues to exert significant disinflationary pressure. Imported goods, which account for around 22% of the consumer price index, rose by only 0.7% YoY in May. This marks a shift from the past three years, during which imported prices were consistently declining, but remains well within the SNB’s comfort zone.

At the same time, domestic inflationary pressures remain subdued, with prices rising by just 0.6% year-on-year in May. The SNB itself noted that “the contribution of other goods and services was negligible” to overall inflation. In such an environment, there was little justification for policy action, and none was taken.

Inflation outlook remains benign

While early-year deflation concerns have eased, the risk of a significant inflation pick-up in the coming months appears limited. The SNB now forecasts inflation at 0.6% in both 2026 and 2027, and 0.7% in 2028 — each revised up slightly by 0.1pp compared to March projections. Inflation is expected to reach 0.8% in the first quarter of 2029.

Overall, the outlook remains benign, with inflation comfortably within the SNB’s target range. In our view, this points to an unchanged monetary policy stance in the coming quarters. We expect policy rates to remain at 0% for at least the next two years.

Targeted FX interventions remain on the table

The SNB stated that it is “if necessary, more willing to intervene in the foreign exchange market to counter any rapid and excessive appreciation of the Swiss franc that could threaten price stability in Switzerland.” Each element of this statement matters.

First, the SNB is signalling a willingness to intervene in FX markets, but only to counter franc appreciation. This is not a repeat of the 2022 strategy, when the SNB sold foreign exchange reserves to strengthen the franc in order to curb inflation. The current stance implies action only if the franc becomes too strong.

The Swiss franc has indeed appreciated in effective terms over the past 12 months. However, pressures have eased since early March, when the SNB made clear that it stood ready to move more actively in FX markets. More importantly, in real effective terms, the franc has not become more expensive, thanks to lower inflation in Switzerland compared with other economies. This is the metric the SNB monitors most closely. We expect Swiss inflation to remain persistently below that of its peers in the coming months, which should help contain concerns about excessive franc strength in real effective terms.

In addition, interventions are explicitly framed as targeting rapid and excessive appreciation. This suggests that the SNB does not intend to intervene continuously, but only during periods of market stress, as seen in early March. The addition of “if necessary,” compared with the March communication, further reinforces that FX intervention is not a tool used on a permanent basis. In our view, systematic intervention is unlikely, but the SNB will not hesitate to step in during episodes of market tension.

Finally, intervention is conditional on risks to price stability. In practice, this means the SNB would act only if an overly strong franc were to risk pushing imported inflation sharply lower and generating deflationary pressures. Given the current inflation outlook, this risk appears limited, reducing the immediate need for intervention.

A comfortable position

Overall, today’s decision confirms that the Swiss National Bank remains in a relatively comfortable position and arguably more so than most other central banks. This is likely to remain the case in the coming months.

As a result, the SNB can afford to stay on hold and we expect this to remain the case over the coming years.

EUR/CHF: Some modest upside

EUR/CHF has seen a little upside on today’s SNB decision, where it seems in no hurry to follow central bank peers in tightening policy. The EUR/CHF correlation with rate differentials is starting to pick up again and an SNB lagging summer tightening cycles elsewhere can probably see EUR/CHF edging a little higher still – perhaps to 0.93.

At the same time, we had felt that some of the Swiss franc strength over the last year – even as global equities rallied – had been part of the dollar debasement trade. However, US real rates have pushed higher over recent weeks and if there was one main message to take from last night’s FOMC meeting, it was that the Federal Reserve intends to take the inflation threat more seriously.

If the dollar is to advance a little further this summer, USD/CHF could prove a key vehicle for investors to position for more credible Fed policy. Above this year’s high of 0.8040, USD/CHF could have a run at 0.82.

Read the original analysis here