NextFin News - Petra Tschudin, a member of the Swiss National Bank's Governing Board, has signalled that the central bank would cut its policy rate below zero if necessary, even as she stressed that the hurdles for returning to negative rates remain high. The comments, made in an interview published on August 21, 2026, arrive with Swiss inflation running below the SNB's own forecast, the Swiss franc firming against the euro, and the policy rate already pinned at 0% - the lowest level among major central banks.
The tension at the heart of the story is simple but consequential: the SNB spent the better part of a decade describing negative rates as an undesirable instrument with serious side effects, only to keep it in the toolkit and now explicitly reaffirm its availability. With the policy rate at zero and no room for further conventional cuts in positive territory, the question is no longer whether the SNB likes negative rates, but how quickly it might be forced to use them again.
The Statement and the Numbers Behind It
Tschudin told the Swiss business daily that negative interest rates remain an important policy instrument for Switzerland as a small, open economy, and that the central bank would deploy them if the price-stability mandate required it. The message is deliberately two-sided: the bar for use is high, but the door is not closed.
The backdrop explains why the remark matters more than a routine reassurance. At its June 18 monetary policy assessment, the SNB left the policy rate unchanged at 0%, with banks' sight deposits above the exemption threshold still remunerated at 0.25 percentage points below the policy rate. The bank's conditional inflation forecast - which assumes the policy rate stays at 0% across the entire horizon - puts average annual inflation at 0.6% for 2026, 0.6% for 2027 and 0.7% for 2028, comfortably inside the 0% to 2% price-stability range.
Actual inflation is already running below that path. Consumer prices rose just 0.4% year-on-year in July 2026, the softest reading since March and down from 0.5% in June, according to national statistics. Core inflation held at 0.3% annually. In other words, the SNB's own forecast for 2026 already looks optimistic by 0.2 percentage points with more than half the year in the books, and the gap would widen further if prices weaken into the autumn.
Money-market pricing reflects the squeeze. SARON, the Swiss reference rate, was trading at -0.08% on August 20, already below the policy rate, while the yield on 10-year Swiss Confederation bonds stood at 0.462% on August 21. The currency itself shows the pressure: the SNB's computed rates put USD/CHF at 0.7996 and EUR/CHF at 0.9359 on August 21, with the franc having strengthened roughly 1.9% against the dollar over the preceding month.
"For us as a small, open economy, the negative interest rate instrument is important," Tschudin said in the interview.
Why Zero Is a Fragile Floor for a Small Open Economy
The mechanism here is not the same one that governs the Federal Reserve or the European Central Bank. Switzerland is a small, open economy with a large external surplus and a currency that functions as a global safe haven. When risk appetite sours - because of conflict in the Middle East, uncertainty over US trade policy, or a slowdown in the euro area - capital flows into the franc regardless of the interest-rate differential. That appreciation imports disinflation directly, by lowering the price of imports and by forcing Swiss exporters to compress margins.
This is why the SNB's transmission channel runs through the exchange rate first and domestic demand second. A stronger franc lowers inflation mechanically and quickly; a weaker franc raises it with the same efficiency. At a policy rate of 0%, the bank has exhausted the conventional tool for leaning against appreciation. The exemption threshold on sight deposits already imposes a tiered negative rate of -0.25% on marginal balances, but the policy rate itself cannot go lower without crossing into negative territory. Once inflation is running at 0.4% and trending down, the distance to the lower bound of the 0% to 2% target range is short, and the risk of slipping below zero for several months becomes material.
The historical record shows the SNB is willing to act on exactly this logic. It introduced negative rates in December 2014 and deepened them to -0.75% in January 2015, holding that level until June 2022, when it raised the rate to -0.25% as inflation accelerated. Only in September 2022 did it exit negative territory entirely, lifting the policy rate to 0.50%. The instrument was not a theoretical option; it was the working framework for nearly eight years.
There is also a credibility dimension. In March 2026, the Governing Board stated that its willingness to intervene in the foreign exchange market had increased, explicitly to counter a rapid and excessive appreciation of the franc that would jeopardise price stability. FX intervention and negative rates are complements, not substitutes: intervention attacks the level of the currency directly, while a rate cut attacks the incentive to hold franc assets in the first place. By keeping negative rates on the table, the SNB widens the set of tools it can deploy if intervention alone proves insufficient to stabilise the exchange rate.
What the Market Has Priced In - and What It Has Not
The conventional read of Tschudin's comments is that they are insurance, not a forecast. Markets currently price the SNB policy rate at 0% through the end of 2027 before any increase, a path built on the bank's own conditional forecast and on the assumption of no major new shocks. On that baseline, negative rates are a tail risk, not the central case.
That consensus, however, may be underweighting the option value of the statement itself. For years the SNB emphasised the "undesirable effects" of negative rates - pressure on bank profitability, pension-fund funding gaps, and distortions in financial intermediation. Tschudin acknowledged in a late-2025 interview that low rates make it harder for pension funds to invest, and she repeated that negative rates would be used only "if necessary." The shift is rhetorical but meaningful: the bank is now re-legitimising an instrument it had spent years stigmatising, precisely because it needs the option to remain credible.
The second-order implication runs through the franc's role as a funding and safe-haven currency. If investors price even a modest probability of a return to negative rates, the carry on short-dated CHF assets turns more negative, which reduces the incentive to accumulate franc positions during risk-off episodes. That is exactly the transmission mechanism Tschudin pointed to: negative rates work in Switzerland less by stimulating domestic credit - the economy is already near full employment, with growth forecast at 1% in 2026 and 1.5% in 2027 - and more by altering the relative return on Swiss assets versus euro-area and dollar assets.
Consider the differential. The ECB's deposit facility rate stands at 2.25% and the Federal Reserve's target range is 3.50% to 3.75%, while the SNB sits at 0%. A further cut into negative territory would widen that gap deliberately. For a currency that has appreciated roughly 0.35% against the euro and held broadly flat against the dollar over the past year, the marginal deterrent effect of even 25 basis points of negative carry can be disproportionate, because the marginal holder of franc assets is often a leveraged carry or hedging account rather than a long-term investor.
The Counter-Case: Why the Hurdles Really Are High
The strongest argument against a near-term return to negative rates is the SNB's own institutional experience and the political economy it created. The last negative-rate episode generated sustained complaints from banks, who argued it compressed net-interest margins and damaged the business model of retail and mortgage lending, and from pension funds and insurers, whose long-duration liabilities became harder to match against negative-yielding assets. Those constituencies have not disappeared; if anything, the Swiss pension system is more sensitive to rates now than it was in 2015, with funding ratios still recovering.
There is also a sequencing argument. The SNB has repeatedly stated that FX intervention is its first line of defence, and it has signalled an increased willingness to use it. As long as the franc's appreciation can be managed through intervention in the foreign-exchange market, the marginal benefit of cutting rates below zero is small while the marginal cost - to banks, pension funds, and the bank's own balance sheet - is large. On this reading, Tschudin's interview is best understood as pre-emptive communication: keeping the option alive to preserve flexibility, while signalling that the preferred path is a prolonged hold at zero.
Furthermore, the inflation picture is not uniformly weak. Energy prices remain exposed to the situation in the Middle East, and the SNB's June forecast explicitly warned that raw-material prices could turn out significantly higher than expected, which would lift inflation and curb growth simultaneously. A supply-side inflation shock would make a rate cut - negative or otherwise - the wrong policy response, because it would weaken the franc and import still more inflation.
This counter-thesis is coherent and has institutional backing: the SNB's own forecast assumes the policy rate stays at 0% across the entire horizon, and the bank has held rates steady at both its March and June 2026 assessments despite inflation running far below its peers. Euro-area inflation in July was 2.9%, compared with Switzerland's 0.4%, which underscores how much of Switzerland's disinflation is structural - the product of the franc's strength and regulated domestic prices - rather than a sign of collapsing domestic demand.
The Cyclical Versus Structural Call
So which force dominates - the cyclical disinflationary impulse or the structural constraints that make negative rates a last resort? The answer splits by time horizon.
In the short run, the pressure is cyclical and mean-reverting. The July 0.4% inflation print owes a large share to falling food and energy-related components, and energy prices are the single most volatile input in the SNB's forecast. If the Middle East situation stabilises or global growth picks up as the bank's medium-term baseline anticipates, inflation can drift back toward the 0.6% forecast without any policy change. On that path, negative rates remain a dormant option.
But the constraint is structural, and it will not revert on its own. Switzerland's status as a safe-haven currency with a large external surplus means that every episode of global stress produces franc appreciation and imported disinflation. At a policy rate of 0%, the SNB has no conventional room to offset that impulse. The structural problem is not whether inflation is 0.4% or 0.6% today; it is that the zero lower bound sits only 40 basis points above the bottom of the target range, leaving almost no buffer between a modest shock and the point where the only remaining conventional tool is a negative rate. That is a regime characteristic, not a cycle.
The practical conclusion follows: negative rates are unlikely to be deployed on the central bank's current forecast, but the probability of use is asymmetric to the downside. A string of soft inflation prints, combined with renewed safe-haven flows, would force the decision much faster than a symmetric distribution around the 0.6% forecast would suggest.
What to Watch Next
The next monetary policy assessment is scheduled for September 24, 2026. Three signals will determine whether the negative-rate option moves from rhetoric to preparation.
First, inflation. If the August and September prints come in at or below 0.3% year-on-year, the 2026 forecast of 0.6% becomes unreachable without an upward surprise in the fourth quarter, and the Governing Board will have to acknowledge that inflation is tracking below its comfort zone. Second, the exchange rate. A sustained move in EUR/CHF below 0.92, or a break in USD/CHF toward 0.78, would indicate that appreciation pressure is building despite the bank's stated willingness to intervene. Third, money-market and options pricing: if SARON stays negative and the options market begins to price a meaningful probability of sub-zero rates at the September or December meetings, the SNB will face pressure to either act or communicate more forcefully.
The falsifying signal for the view that negative rates remain a tail risk is straightforward: two consecutive monthly inflation prints at or above 0.5% year-on-year, combined with a stable EUR/CHF above 0.94, would confirm that the disinflationary impulse is fading and that the hold-at-zero path through 2027 remains intact. Conversely, inflation at 0.2% or lower for two months running, with the franc firming, would move negative rates from the tail into the plausible range.
Scenarios: the base case is a hold at 0% through 2026, with the bank relying on FX intervention and forward guidance to manage the franc while inflation gradually converges toward its 0.6% forecast. The downside case - a sharper global slowdown, a new energy-price shock that nonetheless fails to lift core inflation, and renewed safe-haven flows - would put a 25-basis-point cut into negative territory on the table at the September or December assessment. The upside case - a resurgence of imported inflation from energy or a weaker franc - would keep rates at zero and could even reopen discussion of the exit path well before 2027.
The SNB does not like negative rates, and it has said so repeatedly. But central banks are not paid to like their tools; they are paid to have enough of them. At 0%, with inflation at 0.4% and the franc firming, Switzerland's central bank is quietly reminding markets that it still has one move left - and that it is prepared to use it.
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