Swiss National Bank's new chairman does not rule out negative rates

By John Revill

BELLINZONA, Switzerland, Oct 1 (Reuters) - The Swiss National Bank cannot rule out the possibility of taking interest rates into negative territory while the risks for Swiss inflation are tilted downwards, new Chairman Martin Schlegel said on Tuesday.

The SNB, a frontrunner in the interest rate cutting cycle underway at the U.S. Federal Reserve and the European Central Bank, last week lowered its interest rate for the third time this year and signalled further cuts could be coming.

But the SNB has limited options to do more to lower borrowing costs and take the heat off the safe-haven Swiss franc when interest rates are already at just 1.0%.

"We can't rule out any measures," Schlegel told an event in Bellinzona when asked if the SNB would consider reintroducing negative interest rates it exited two years ago.

"We can't rule out negative rates either," he added, speaking at his first appearance after taking over as head of the central bank from longstanding chairman Thomas Jordan.

Switzerland is no stranger to negative rates, having used them previously to help to cool the franc. The country excited negative rates in September 2022, joining other central banks in raising rates to combat inflation.

Schlegel said downward risks for inflation are currently greater than the risk of the inflation rate going above the SNB's 0-2% target.

"Definitely the downwards risks are higher than the upwards risks," he said.

Swiss inflation slowed to 1.1% in August and has been within the central bank's 0-2% target range for the last 15 months. The SNB currently forecasts inflation to decline further to 0.6% in 2025 and be at 0.7% in 2026.

Markets have currently priced in an 85% probability the SNB will cut rates again to 0.75% at its next meeting in December.

Schlegel stressed the importance of the SNB's price stability goal, saying this was the biggest contribution it can make to the Swiss economy and society.

He said interest rates were the central bank's primary tool, although the bank was also prepared to intervene in currency markets when necessary.

He also acknowledged the challenges the strong franc posed for Swiss exporters, but said the main problem facing companies was tepid demand abroad.

"I'm aware the franc can be difficult for these companies. But the main factor is the weak foreign demand," he said.

($1 = 0.8419 Swiss francs) (Reporting by John Revill Editing by Dave Graham and Jane Merriman)