- Negative inflation prints are well possible this year
- A few months of negative inflation wouldn’t be a problem
The SNB left everything unchanged at the last policy decision and sounded a bit more positive on the future outlook given the lower US tariff rate. SNB’s members continue to repeat that the bar for going back to negative rates remains very high and these latest comments from Chairman Schlegel reaffirm that stance.
He said that negative inflation prints are well possible this year but added that they wouldn’t be a problem. Market participants were betting on negative rates at some point last year as inflation kept on falling towards deflation territory. The persistent pushback from the central bank eventually reversed those expectations.
The main problem has been the strength in the Swiss Franc which reached a new record high versus the Euro last year due to geopolitical concerns over Trump’s tariffs. The CHF is the purest “safe haven” bet in the FX market for several reasons that range from political stability and neutrality to fiscal and monetary discipline.
Looking ahead, the market is not pricing any rate cut for this year and we certainly won’t see a rate hike. This leaves the Swiss Franc trading mainly on risk sentiment. The focus is now on Greenland and the latest tariff threats from Trump. If we were to get a de-escalation, the CHF would likely weaken across the board, but if Trump decides to escalate further, then we could see new highs in the Franc which would add downward pressure on inflation.
