Swiss National Bank preview: Still no reason to move

Swiss economic growth has recently surprised on the upside, but inflation remains too low to warrant a change in monetary policy. We expect the Swiss National Bank to keep its policy rate at 0% next Thursday and to remain on hold over the coming quarters.

The economy has performed better than expected

The Swiss economy has recently delivered a positive surprise. GDP adjusted for sporting events increased by a particularly strong 1.5% quarter-on-quarter in the second quarter. Importantly, this figure is not annualised, making the expansion all the more remarkable. Growth was broad-based across sectors and demand components, in line with the improvement in confidence indicators.

The headline figure nevertheless probably overstates the underlying strength of the economy. Almost half of the quarterly increase came from the volatile chemicals and pharmaceuticals sector, alongside a sharp rise in exports. A deceleration is therefore likely in the second half of the year.

Even so, the economy is clearly performing better than anticipated a few months ago. We have raised our forecast for GDP growth to an average of 1.9% in 2026, while we expect growth of 1.6% in 2027. The stronger outlook reflects the solid performance recorded in the first half of the year, somewhat more favourable international demand and the recent slight weakening of the Swiss franc. Domestic demand should also continue to expand, supported by private consumption and stronger capacity utilisation.

Stronger growth is not an inflation risk

The stronger growth performance does not, in our view, represent a significant risk to price stability. The consequences of the global energy shock are visible in Switzerland, but they remain much less severe than in most other developed economies.

Following the rise in global energy prices, headline inflation increased to 0.8% year-on-year in August, from 0.4% in July. This was largely driven by petroleum product prices, which were 25.2% higher than a year earlier. Nevertheless, inflation remains comfortably within the SNB’s 0-2% inflation target.

More importantly, underlying inflationary pressures remain extremely weak. Excluding petroleum products, Swiss inflation stood at just 0.3% year-on-year in August. This suggests that the energy shock has not translated into broad-based price pressures and that domestic second-round effects remain limited.

The strength of the Swiss franc continues to play a considerable role in keeping inflation below that of Switzerland’s main trading partners. By limiting the increase in the price of imported goods, the currency acts as an important buffer against global inflationary shocks. This mechanism is particularly powerful in Switzerland, where imported goods account for around 22% of the consumer price index. It also helps explain why the current energy shock is proving much less inflationary than elsewhere, as was already the case in 2022.

However, the exchange-rate channel provided slightly less disinflationary support in August than in previous months. The franc has weakened moderately against the euro since the SNB’s June meeting. This should provide some support to exporters and could put limited upward pressure on imported prices, but the currency remains strong by historical standards.

Inflation should remain under control

Inflation is likely to remain contained over the coming months. In forecasts published yesterday, the government maintained its projections for average inflation at 0.6% in both 2026 and 2027. These forecasts are based on the current profile of energy futures, which points to lower oil prices over the coming months. If that profile materialises, part of the recent increase in headline inflation should prove temporary.

We believe that the SNB is likely to revise its conditional inflation forecast slightly higher, particularly over the short term, to account for the recent increase in energy prices and the somewhat weaker franc. At its June meeting, it forecast average inflation of 0.6% in 2026 and 2027 and 0.7% in 2028. A modest upward adjustment now looks likely, but we do not expect a significant revision to the medium-term profile. Underlying inflation remains very low, domestic price pressures are contained and the pass-through from the energy shock remains limited.

Overall, there is little to suggest that the SNB needs to change its policy rate. We expect it to leave the rate unchanged at 0% on Thursday and to remain on hold over the coming quarters, particularly if, as we expect, global energy prices eventually decline.

The SNB is therefore likely to continue to stand out from other central banks by maintaining a much more accommodative monetary policy stance. This divergence reflects Switzerland’s domestic inflation environment, which remains unusually benign thanks in large part to a currency that is still strong.

FX intervention remains a backstop, not the base case

Foreign exchange intervention will remain part of the SNB’s policy toolkit. In June, the central bank referred specifically to purchases of foreign currency to counter a rapid and excessive appreciation of the franc. Such action would remain possible in the event of a renewed safe-haven shock that pushes imported inflation lower and revives deflation risks.

For now, the franc’s recent weakening and Switzerland’s persistently lower inflation relative to its trading partners have reduced the need to intervene. The SNB is therefore unlikely to respond to every bout of nominal appreciation, particularly as the franc’s real effective appreciation remains more limited.

The asymmetry of the SNB’s communication is also significant. It has not signalled a willingness to sell foreign currency to strengthen the franc, as it did in 2022, to curb imported inflation. With inflation still firmly under control, there is little reason to reopen the door to such interventions. We therefore expect the SNB to retain its one-sided guidance: FX purchases remain possible in response to an abrupt and excessive appreciation, but systematic intervention and a return to the 2022 strategy are unlikely.

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