The Swiss National Bank (SNB) cut its interest rate to zero, seeking to deter investors from pushing up the franc.

Investors seeking safe havens amid US tariff threats and trade uncertainty have driven up the Swiss currency, causing consumer prices to drop for the first time in four years but also making the nation’s exports more expensive.

The quarter-point reduction is the sixth consecutive rate cut by officials, and was forecast by most of the economists.

It underscores just how far US President Donald Trump’s disruption to global trade is impacting Switzerland. President Martin Schlegel and colleagues had signalled as recently as March that they were probably finished with easing, but the currency’s role as a haven from turmoil forced their hand. 

“With today’s easing of monetary policy, the SNB is countering the lower inflationary pressure,” the central bank said in a statement. “The SNB will continue to monitor the situation closely and adjust its monetary policy if necessary” it said, adding that it “remains willing to be active in the foreign exchange market as necessary”.

Investor alarm at the impact of US policies prompted such inflows in the past quarter that the franc touched a decade-high against the dollar, pushing the inflation rate below below zero for the first time since early 2021.

The Swiss move contrasts with the wait-and-see approach taken by most global peers. On June 18, the Federal Reserve kept its rate unchanged, and the Bank of England may do so too later on June 19. Officials at the European Central Bank have signalled a pause for now after a series of reductions.

By going as low as zero, SNB officials are not only ending more than 2½ years of positive rates, but also settting the lowest benchmark of any major central bank. 

They’re also experimenting with a specific level that the central bank never tested when it adopted negative borrowing costs, neither on the way down, nor going up again. That will challenge Swiss banks, as it eliminates income from deposits while also compressing margins on loans and mortgages.

If pressure on the franc persists, officials have the option of going below zero, which the SNB already did from 2014 to 2022. Mr Schlegel has said that “no one likes” such a measure but that policymakers are ready to do so if needed. A minority of economists reckon such a move could transpire as soon as this year. 

The other way to weaken the franc would be to restart currency interventions, but that brings risks of its own. The US branded the Swiss a manipulator during Mr Trump’s first term, and earlier this month, the Treasury added Switzerland to a list of economies subject to monitoring for exchange-rate policies.

SNB officials have said that they will use the tool if necessary, but shirked from large-scale market action for all of 2024. 

For now, one source of relief for the central bank may come from the increase in crude oil costs after hostilities erupted between Israel and Iran.

Against some expectations they kept intact their outlook for Switzerland’s economy despite US tariffs. After the strongest expansion in two years last quarter due to front-loading of exports, the SNB still expects growth in a range of 1 per cent-1.5 per cent this year.