Swiss Central Bank Cuts Rates by 25bps

• The Swiss National Bank just cut rates by 25 basis points, bringing the policy rate down to zero. It’s the first G10 central bank to move this way in 2025, not quite negative, but a clear step closer.

• Inflation turned negative in May, dipping to -0.1%, the first time in four years. A big part of that is the strong franc, up 10% against the dollar this year. That strength is making imports cheaper, which is pulling prices down. The SNB is trying to take the edge off without sparking accusations of currency manipulation. Not an easy balance.

Measured, But Not Passive

• Some had expected a deeper cut, maybe 50 basis points, so when the move came in smaller, the franc initially bounced. But that reaction faded. The real takeaway is that the SNB is being careful. Chair Schlegel made it clear: they’re not rushing into negative territory unless they have to.

• Short-term bond yields nudged higher after the announcement. Swaps are now pricing about a 40% chance of another cut by March. It’s not off the table, but they’re keeping their options open. Zero might be where they stop or just pause.

Pressure Without Panic

• The SNB is dealing with three tricky forces: soft inflation, haven flows driven by global tensions, and pressure from the US to avoid direct FX intervention. Cutting rates is cleaner politically, but it’s not without trade-offs.

• Swiss banks will feel this. They earn less on their reserves, margins get tighter, and there’s less room to pass that pain onto customers. Real estate risk might build too. Still, the SNB likely sees this as the least messy option for now.

How We’re Thinking About It

• This is one example of how things are changing across markets. Central banks are no longer moving in sync. The Fed’s waiting, Europe’s softening, and countries like Switzerland are feeling the heat in different ways. Capital’s becoming pickier, and volatility is starting to return.

• For us, that means leaning into dislocations. In Europe, we’re adding to high-quality sovereigns that might benefit from this easing cycle without the FX baggage. In currencies, the franc feels rich, but with negative rates still a risk, we’re waiting for a better setup before making a move.

• Bigger picture, we’re reminded again that old safe havens don’t always hold up. The more clarity a country can offer, in its policy, its fiscal footing, its domestic demand, the more stable it’ll look to us. Right now, that list is short.