Swiss monetary policy is likely to stay on hold at the coming policy meeting, with UBS economists Maxime Botteron and Alessandro Bee projecting the Swiss National Bank will keep its policy rate unchanged at 0% on Thursday. The conclusion follows recent market moves driven by geopolitical tensions in the Middle East that have pushed energy costs higher and lifted demand for safe-haven currencies, including the Swiss franc.
Since the conflict began, Brent crude has traded above $100 per barrel. In Swiss franc terms this represents an increase of more than 50% from earlier levels. UBS notes that, on a year-on-year basis, oil prices are currently around 30% higher and estimates that this rise should add no more than roughly 0.3 percentage points to Swiss inflation. If oil prices remain at their present levels through the second quarter of 2026, UBS projects the contribution from higher petroleum product prices to headline inflation would increase to about 0.4 percentage points.
By contrast, exchange-rate developments are exerting downward pressure on headline inflation. The Swiss franc has strengthened against the euro, with EURCHF falling below 0.90 on Monday. UBS calculates that this more than 3.5% appreciation of the franc against the euro since the SNB's December rate decision would, if sustained at this level, subtract an estimated 0.35 percentage point from headline inflation.
Taken together, the direct effects of higher energy costs and a firmer currency largely offset one another, leaving UBS to conclude that the outlook for Swiss inflation is broadly unchanged in their assessment. Swiss inflation was measured at 0.1% year on year in February.
Nonetheless, the economists highlight heightened downside risks to the economy. Elevated energy prices could slow growth, which in turn increases the probability of deflationary pressures emerging. A stronger franc is already weighing on Swiss exporters and the broader growth outlook. The Swiss National Bank has signalled greater willingness to intervene in foreign exchange markets, reflecting concern about the franc's rapid appreciation.
UBS expects the SNB's preferred response to these developments will be to buy foreign currencies in order to counter upward pressure on the franc, rather than to cut the policy rate. The analysts note that the impact of geopolitical pressures on energy prices tends to be transitory in their experience, supporting the view that intervention in FX markets is the appropriate near-term tool.
However, UBS also sets out a conditional path in which a material deterioration in the global growth outlook - potentially driven by a sustained and significant rise in energy costs - would make a reduction of the SNB policy rate into negative territory more likely. Under current assumptions, UBS expects the SNB to hold the policy rate at 0% at the March meeting and to maintain that rate through the next 12 months.
In UBS's central scenario, a boost to Eurozone growth provided by increased German government spending would strengthen the euro. Combined with an assumption that oil prices revert to around $70 per barrel, this would see EURCHF climb to 0.93 over their forecast horizon.
Key points
- SNB expected to keep policy rate at 0% at March meeting and for the following 12 months, according to UBS economists.
- Higher oil prices have inflationary effects, but the franc's appreciation has an offsetting disinflationary impact.
- Stronger franc pressures exporters and growth; SNB is more willing to intervene in FX markets.
Risks and uncertainties
- Persistent elevated energy prices could slow economic growth and increase the risk of deflationary pressures, affecting domestic demand and inflation dynamics.
- A stronger Swiss franc weakens exporters' competitiveness and can dampen the broader growth outlook for trade-exposed sectors.
- If global growth deteriorates materially, possibly due to sustained higher energy costs, the likelihood of the SNB lowering its policy rate into negative territory would rise.