Bastian Benrath-Wright
Updated 5 min read
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(Bloomberg) — The Swiss National Bank’s next cut in borrowing costs may be about to cause a headache for banks, if officials end up experimenting with their first-ever interest rate of zero.
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A quarter-point reduction anticipated by most economists on Thursday would not only draw a line on less than three years of positive monetary policy, but would also place the financial system in unchartered territory by stopping short of going negative, conceivably for some time to come.
Swiss policymakers are poised to act in order to stoke consumer prices depressed by the strength of their currency. It touched a decade-high against the dollar in April as global market ructions prompted by US President Donald Trump’s tariff onslaught drove haven flows into the franc.
Despite having previously pushed the rate down to -0.75% during the past decade, the lowest level in the world, the SNB never actually made a stop at zero before — neither on the way down, nor when it finally exited negative territory in 2022. While policy regimes all differ, global peers have tended to skirt that threshold too.
Officials have long acknowledged the discomfort of going below zero for Switzerland’s $4.1 trillion banking sector, whose traditional domestic savings and mortgage business generates less income under that level. But at least institutions including UBS Group AG, Postfinance and Zuercher Kantonalbank have the option of charging customers who keep money with them.
Zero risks turning out to be an even more awkward no-man’s land. It erases the interest that allows them to attract deposits and compresses margins on loans, but also offers a poor justification to impose costs on clients. And with most economists anticipating no further cuts for now, the squeeze could be enduring.
“A steady zero interest rate is the worst-case scenario for Swiss banks,” said Ausano Cajrati Crivelli, an analyst at ZKB. “For a few months, that doesn’t drastically change the game, but if it persists for an extended period of time, it could become more challenging.”
Swiss banks were already facing a leaner year with the prospect of rates falling. They have also been primed for the risk of returning to negative territory. SNB President Martin Schlegel repeated as recently as this month that it’s an option, even if “no one” likes it.
