Swiss National Bank keeps rates at zero, expects US tariff cut to help economy

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SNB leaves rates on hold for second straight meeting

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Lower U.S. tariffs on Switzerland deliver economic relief

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Inflation has been slightly lower than expected, SNB says

(Adds context, paragraph 3, comments from chairman, paragraphs 8-9)

By John Revill

BERN, Dec 11 (Reuters) - The Swiss National Bank left its policy interest rate unchanged on Thursday, saying a recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook, even as subdued inflation stays lower than expected.

The SNB kept its interest rate at 0%, the lowest among major central banks, for a second consecutive meeting, a decision widely expected by markets and analysts polled by Reuters.

The central bank nevertheless slightly lowered its inflation expectations for the coming quarters, prompting some analysts to warn it might eventually have to take interest rates below zero.

The decision to hold rates comes against the backdrop of a sluggish Swiss economy, which contracted by 0.5% in the third quarter, and after inflation unexpectedly declined in November to 0%, the bottom end of the SNB's 0-2% target range.

SNB Chairman Martin Schlegel said the central bank was comfortable with its inflation outlook, and that it had no preference where inflation came within its 0-2% target band.

"If you look at our inflation forecast, the interesting and important thing is the medium term. It's a little, little bit lower, but it's basically unchanged," Schlegel told a press conference.

The Swiss franc showed little reaction to the rate decision and was up a touch on the day against both the dollar and the euro, to trade at 0.79885 francs and 0.934 francs, respectively.

SLIGHTLY IMPROVED ECONOMIC OUTLOOK

The SNB's latest decision followed a rate cut by the U.S. Federal Reserve on Wednesday.

It was also the Swiss central bank's first policy meeting since Switzerland in November reached a deal with Washington that cut additional U.S. tariffs on Swiss goods to 15% from 39%.

Schlegel said lower U.S. tariffs had a "certainly positive" impact on the Swiss economy, which was also benefiting from lower uncertainty and better economic developments abroad.

"For the firms that are directly affected, it's easier or cheaper, to export to the U.S.," he said.

Schlegel said higher fiscal spending abroad, which would boost demand for Swiss products, would also help exporters and the national economy.

The tariffs have hurt Swiss economic growth at a time when the franc's strength, fuelled by safe-haven flows during the trade turmoil, added to downward pressure on inflation by making imports cheaper.

The SNB said it was ready to act in currency markets if necessary, but did not further address the franc's strength.

EFG Bank economist GianLuigi Mandruzzato said the decision to hold rates was underpinned by an improved growth outlook.

"The signal on monetary policy is that the SNB policy rate will likely stay at the current level for several more quarters, perhaps into 2027," Mandruzzato said.

PROLONGED LOW INFLATION

The SNB slightly lowered its quarterly inflation forecasts for most of the next two years, but still expected the rate to tick up to 0.7% by the end of 2027.

Schlegel stressed inflation was expected to stay within the SNB's target range over the entire forecast horizon.

Karsten Junius, chief economist at J. Safra Sarasin, noted that by lowering its 2026 inflation forecast to just 0.3%, the central bank signalled it is prepared for a prolonged period of tepid price growth.

"Leaving policy rates at 0% now also implies that these low inflation rates will not be sufficient to trigger another rate cut," Junius said.

Many analysts expect steady rates throughout 2026, but some are not convinced.

Adrian Prettejohn, an economist at Capital Economics, said the belief that inflation will pick up will become harder to justify the longer it stays around zero, and that the SNB will eventually have to take interest rates below zero.

"We think that by the middle of next year, the SNB will decide that the risk of deflation is greater than the cost to the financial system of negative rates," Prettejohn said. (Reporting by John Revill Additional reporting by Ariane Luthi, Miranda Murray, Kirsti Knolle, Friederike Heine, Amanda Cooper, James Mackenzie, Ludwig Burger, Matthias Williams, Paolo Laudani, Tristan Veyet and Thomas Seythal Editing by Dave Graham and Tomasz Janowski)