SNB Adjusts FX Intervention Stance as Swiss Franc Gains Carry-Trade Appeal

During its September monetary policy deliberations, the Swiss National Bank (SNB) observed that the Swiss Franc has become increasingly attractive as a “funding currency” for carry trades. This trend is driven by a combination of widening international interest-rate differentials and low exchange-rate volatility. Consequently, the Franc depreciated by roughly 3% in trade-weighted terms between June and September. While Swiss market interest rates saw a marginal increase during this window, the SNB determined that the currency’s depreciation more than neutralized the tightening effect, resulting in overall easier monetary conditions. The Governing Board further noted that safe-haven demand for the currency remained subdued.

Despite a rise in economic activity and an uptick in inflation, the SNB maintains that current monetary conditions are consistent with price stability. Headline inflation hit 0.8% in August, largely due to climbing oil prices, while the trimmed-mean core inflation rate was recorded at 0.6%. Although the Governing Board warned that sustained high energy costs could trigger second-round inflationary effects, there is currently little evidence of such a trend. With inflation expectations remaining firmly anchored and economic growth proving robust and broad-based, the bank concluded that medium-term inflationary pressures have only risen slightly since June.

As a result, the Governing Board has held its policy rate at 0%, viewing this level as appropriate for ensuring medium-term price stability. While the SNB reaffirmed its readiness to intervene in foreign exchange markets if necessary, it explicitly stated that “An increased willingness to intervene is no longer necessary in the current environment.” This shift in language reflects the natural easing of monetary conditions brought about by the Franc’s depreciation, rather than a fundamental change in the bank’s toolkit. With inflation projected to stay within the target range, the central bank sees no immediate requirement to alter its policy rate or its intervention posture.

Key Takeaways

• Policy Rate Unchanged: The SNB maintained its policy rate at 0%, concluding that current conditions support medium-term price stability despite stronger economic growth.
• Currency Impact: A 3% trade-weighted depreciation of the Swiss Franc between June and September eased monetary conditions, offsetting slight increases in domestic interest rates.
• Carry-Trade Dynamics: The Franc’s appeal as a funding currency grew due to low volatility and diverging global interest rates, while safe-haven demand remained limited.
• Inflation Trends: August headline inflation reached 0.8% (driven by oil), with core inflation at 0.6%. The SNB sees no significant evidence of second-round inflationary pressures.
• Resilient Growth: Strong performance in the manufacturing and services sectors has led to an upgraded 2026 GDP growth forecast of 1.5%–2.0%, with 2027 growth expected at approximately 1.5%.
• Shift in FX Strategy: The SNB stated that a “heightened” readiness to intervene is no longer required, though it remains prepared to act in the FX markets to maintain stability.
• Stable Outlook: Projections suggest inflation will remain within the stability range, indicating no immediate need for adjustments to the policy rate.

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