Swiss National Bank chief flags negative rates, weakens Swiss franc

By John Revill

ZURICH, Nov 22 (Reuters) - The Swiss National Bank will reintroduce negative interest rates if necessary, Chairman Martin Schlegel said on Friday, comments which weakened the Swiss franc against the dollar and euro as investors anticipated more rate cuts in future.

The central bank did not like negative rates, Schlegel said, but could use them if needed to dampen investor appetite for the safe-haven franc.

"I want to emphasise that lower interest rates, plus negative interest rates are not excluded from our toolbox," he told an event in Zurich.

"Nobody loves negative interest rates, the SNB does not love negative interest rates, but if it is necessary we are ready to take the next step."

The dollar rose to its highest level in 18 weeks versus the franc following the comments, while the euro reversed its earlier decline as the Swissie weakened.

Switzerland is no stranger to negative rates, having used the measure previously to help cool the franc, whose strength compounds the problems of Swiss exporters already dealing with subdued demand abroad.

The SNB exited negative rates in September 2022, joining other central banks in raising borrowing costs, before changing course this year after inflation was brought under control.

During 2024, the SNB has reduced its benchmark rate three times to 1% now, with expectations of more cuts to come.

Markets currently give a 72% probability for a 25 basis point cut, and a 28% probability for a 50 basis point cut at the central bank's next meeting in December.

The cuts have been made possible by weakening inflation, which has been within the SNB's 0-2% target range over the last 17 months, and eased to its lowest level in more than three years in October.

Schlegel expected the franc to remain a safe haven for investors during times of political and economic uncertainty.

Interest rates remained the SNB's main policy tools, he said, with support from foreign currency interventions when necessary.

Schlegel, who took charge at the SNB in October, hinted that he would not be deterred from foreign currency sales or purchases in future by the possibility of being branded a currency manipulator.

"Our mandate is clear and is focussed on Switzerland," he said, referring to the SNB's goal of inflation running at 0-2%, which would remain the priority in future. (Reporting by John Revill, Editing by Dave Graham and Timothy Heritage)