SNB Strategy: Intervention Preferred Over Negative Rates as Inflation Flatlines

Swiss National Bank (SNB) Chairman Martin Schlegel has sought to manage market expectations regarding the franc (CHF), clarifying the central bank's toolkit as inflation hovers dangerously close to zero.

With Swiss annual inflation sitting at a mere 0.1%—the very bottom of the SNBs 0-2% target range—speculation has mounted that the SNB might need to deploy radical easing measures to prevent deflation.

The High Bar for Negative Rates

Addressing the policy outlook, Schlegel acknowledged that the SNB remains technically prepared to push interest rates back into negative territory if necessary. However, he emphasized that the “threshold is higher” than in previous cycles (2014-2022). Negative rates remain a controversial tool in Switzerland.

Instead, Schlegel pointed to FX intervention as a primary lever. The SNB remains willing to sell CHF in the open market to curb excessive appreciation.

USD Dominance Unchallenged

On the topic of reserve management, the Chairman dismissed the idea of diversification away from the US Dollar. Citing liquidity as the paramount concern, Schlegel stated there is currently “no alternative” to the US Treasury market, reinforcing the structural bid for USD in global central banking circles.

Market Implication

Traders should watch EUR/CHF. With the SNB reluctant to cut deep into negative territory, any sharp appreciation of the Franc is likely to be met with direct intervention rather than rate adjustments.

Data Snapshot

• Inflation Level: 0.1% (Target: 0-2%)
• Negative Rate Cycle Reference: 2014-2022
• Key Currency Pairs: EUR/CHF, USD